What is Open Banking and How Does it Affect the Lending Industry
The advent of Open Banking has changed how consumers access and share their personal financial and banking information. While the EU has already embraced Open Banking, interest in the US is growing in its usage with both the consumer and the lender.
Open Banking vs Traditional Banking
Consumer financial data has traditionally been controlled by the banking system. But with open banking, data is so that loan information and other banking services can be provided in a more seamless manner. Open banking uses software intermediaries called application programming interfaces or APIs which allow financial institutions to communicate with each other. In traditional banking, the bank or lending institution would not share that information, slowing down the credit check and lending processes for both the consumer and the lender.
Open Banking and Lenders
The benefits for consumers who use open banking platforms are emerging with more widespread use, but some of the most obvious consumer benefits are that fintech startups and developers are able to be more agile in presenting banking options to consumers, consumers experience a more streamlined application process and personalized digital tools can be created to help consumers manage their money. But lenders also realize significant benefits as well.
- Automating Credit Checks
- With Open Banking, lenders can speed up the process of checking credit scores and identifying risks. This fully digital application process allows for a quick conversion, benefiting both the lender and the consumer.
- Personalized Offerings
- With detailed credit information about consumers, lenders can offer more products personalized to their consumers’ needs. And since open banking creates solutions for consumers to improve their credit, lenders may see an uptick in working with consumers as a result.
- Quick Loan Offers and Payouts
- With the ability to make more rapid decisions, businesses can reach lending decisions and set up payouts faster because of the ease of moving banking data between banks and fintech companies.
New concepts in fintech can be daunting for your clients, especially if it deals with their personal information. It is important that you keep their mind at ease and be ready to answer their questions.
Have questions? Speak to a Private Eyes expert for more information.