Covid-19 has accelerated the lending industry’s adoption of open banking, stakeholders have claimed.
The data sharing initiative – which mandates high street banks to share anonymised customer data with approved third parties – can be used to assess borrowers’ creditworthiness more accurately, which is particularly important during the pandemic-induced economic downturn.
Read more: Funding Circle looks again at open banking
Daniel Napon, finance director and chief operating officer at peer-to-peer consumer lender Leap Lending, believes that the public health crisis as boosted the need for the initiative. The platform launched in December and requires all of its borrowers to share their bank transaction data using open banking.
Napon also suggests that open banking has made funding aggregator platforms recognise the benefits of the technology.
“I think Covid-19 has definitely accelerated the adoption of open banking,” he said.
“Before it was in the pipeline for brokers and lenders to adopt it and wasn’t a priority, but this has changed.
“Open banking provides a detailed, real-time view of the situation, showing whether people have lost their job, been furloughed, or even borrowed a separate loan in the past couple of days. A lender would also be able to detect any income shock such as total or partial loss of income.
“Without open banking, lenders would have to rely on waiting for the next wage slip or self-declarations from borrowers to verify income or employment, but that’s not a reliable process.
“Stakeholders understand that open banking provides a more accurate and reliable picture of a borrower and enables lenders to stay compliant with what the regulator wants regarding affordability. That’s why for them it’s a no brainer to accelerate the adoption of open banking.”
Read more: ArchOver rolls out open banking
Aggregators including Loans Warehouse, RealRates and Freedom Finance are using open banking now, according to Napon, with others currently working on integrating the technology.
Napon’s comments echo those of Robert McKechnie, open banking expert at consumer credit reporting agency Equifax, who recently said that the data-sharing initiative could kick-start lending amid the pandemic.
“Once the economy starts to recover, the extra level of real-time data and insight open banking offers will be vital to restore lenders’ confidence and reinvigorate the supply of credit for businesses and individuals,” he added.