October used open banking to increase SME lending
European peer-to-peer lending platform October has revealed that using open banking enabled it to lower its minimum loan amount and lend to more small- and medium-sized enterprises (SMEs).
Speaking at a LendIt Fintech webinar on open banking, Patrick de Nonneville, chief operating officer of October, said the platform uses the data sharing initiative to make better credit decisions, lower its minimum loan amount and prevent fraud.
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“There are several aspects we look at,” he said.
“The amount of manipulation that can happen on financial statements is a big deal in assessing the quality of a company. With open banking we know the data is 100 per cent correct. You have a better, simpler view of what’s going on in a business.
“Regarding the changes for the customer, because it’s safe, instantaneous and cheap for us it’s been a big game changer to be able to target companies that ask for smaller loans.
“We started by doing loans at a minimum of €100,000 (£85,900) but now with open banking the data is more correct and you make decisions more cheaply and securely so we can lend at €15,000 and that increases the number of SMEs we can serve in a big way and for them it changes the experience.
“They (borrowers) don’t have to approve anything, they agree for information to be transferred for us and it’s pretty big.
“It’s a big game changer in terms of improvements. Smaller companies are aware of the amount of paperwork to do anything and it’s a bit shocking to get a loan on the basis of pushing a button. It’s really something we’re proud of.”
Christoph Riech, co-founder and chief executive of Iwoca, said the fintech firm offers open banking to all customers as it’s a convenient option that reduces the friction in the process.
He said Iwoca is able to provide more credit decisions as a result of using the data sharing initiative and launched a payment product powered by open banking last year.
Riech also predicted innovation within the payments space to come to Europe “very soon”.
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“Once you have a continuous feed of banking transactions into your systems, you’re also able to provide completely new credit products and use open banking as a source to understand future revenue and build revenue-based loans that were historically tied to payment processes,” he said.
“So, through open banking you have this continuous feed and I think there’s a lot more innovation coming in over the next few years, offering revenue-based products more suitable for customers.”
Leon Muis, chief business officer at Yolt Technology Services, said open banking is well placed to benefit SME lending and has aided this during Covid.
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“Looking at the transaction history of companies gives us a really good feel of affordability of the company and we hope that results into affordable lending,” he said.
“Open banking is picking up in the UK.”
