CCR2 Affordability, Vulnerability, and Open Banking
Key impacts Should a lender introduce Open Banking? Ultimately, each lender will make their own decision. There are, however, several key impacts on business models, both on expense and revenue lines: l Costs incurred in securing transactional data – most lenders will choose to use a third party to pull transactional data. This may be much easier than applying for a full Account Information Service Providers Licence. There are multiple players, ranging from specialists to the biggest reference agencies. Lenders will make their own decisions, perhaps trading flexibility and adaptability with confidence of a known name. Whatever choices lenders make, the market is sure to commoditise in the not too distant future. l Consumer drop-out reducing lending – the level of drop-out will vary from organisation to organisation, depending on the consumer need, their attitude to risk, and the complexity of journey. This will, obviously, impact the
amount of lending, but, as Open Banking becomes better understood by the general public over time, it is reasonable to expect more consumers will be comfortable sharing their bank data. Lenders need to be willing to accept reduced conversion rates in return for better lending defendable decisions. l Using historical transactional data to defend against complaints – of course, the Financial Ombudsman will continue to make decisions based on the individual circumstances of a case. However, having transactional-level data,
and being able to articulate how it was used to make affordability and underwriting decisions, represents a step forward in
being able to defend a decision to lend. Only time will tell how successful it is in ensuring affordability to the standards set by the regulatory family.
As a conduit for transactional data and assessing affordability, it offers a new gold standard
Conclusion We were aware that being the first mover to introduce Open Banking might be a disadvantage, given the costs and lost conversions. However, we believe those who embrace transactional data and understand how to operationalise it in a digital form will be the ones that prosper. A £200 loan over three months does not allow the margin to utilise manual underwriters profitably, and consumers will not wait days to receive a decision. We believe Open Banking will soon be the base for all lending decisions, especially in an ever-expanding digital world under increasing regulatory scrutiny. As a conduit for transactional data and
assessing affordability, it offers a new gold standard. CCR2
The Evolution of Open Banking: Adoption, Benefits and Consent
The new report from TransUnion, based on research conducted by Forrester Consulting, explores the opportunity and evolution of Open Banking in detail – from both a business and a consumer perspective.
FIND OUT MORE AND DOWNLOAD
www.transunion.co.uk/open-banking-report
#TUOpenBanking
TransUnion and TransUnion Information Group are trading names of Callcredit Information Group Limited and its subsidiaries.
March 2019
www.CCRMagazine.com
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