How will open banking impact P2P lending this year?

Open banking has been hailed as the solution to small and medium-sized enterprise (SME) funding and consumer lending. More than six million Brits are already using the data-sharing technology to help them find better deals, and this figure is rising by the day.

A recent survey by TransUnion found that younger people have responded particularly strongly to open banking solutions. 42 per cent of Gen Z consumers already use open banking, while a further 32 per cent said they haven’t used it yet but would be willing to do so.

Meanwhile, separate research from identity management company Curity found that almost half (43 per cent) of all large financial institutions have now adopted open banking, and 71 per cent of financial institutions plan to adopt open banking in the next 18 months.

Yet there has been some hesitation among peer-to-peer lending platforms. Concerns abide around the efficacy and affordability of cyber security and data protection. For some platforms, the benefits of open banking do not yet outweigh the risks.

For others, it represents an opportunity to improve their underwriting skills and attract new borrowers. We asked a number of P2P platforms how important open banking will be to their business over the next 12 months, to get a sense of uptake over the coming year, and some of the responses were a little surprising. Read on to learn more about how open banking is set to change the P2P sector in the year ahead…

How important will open banking be to your business in the next 12 months?

Filip Karadaghi, co-founder and chief executive of LandlordInvest

“It is not important at all given the type of lending that we do. “We retain interest on most loans therefore an overview of borrowers’ real-time transactions or financial standing is not overly useful. “Secondly, loan documents for secured loans usually contain no provisions in relation to data made available through open banking and we would be limited or unable to act on the information. “And finally, when the borrower is a special purpose vehicle, open banking provides little insight. Furthermore, there may be shareholders or guarantors where open banking provision may not be possible and breach data protection rules. We have no affordability rules and it’s therefore questionable from data protection laws.”

Ali Celiker, chief executive of British Pearl

“Interoperability is a logical and inevitable evolution of the financial system. Open banking offers efficiencies and user experience improvements which benefit all stakeholders. “British Pearl embraced open banking early on. It was the first real estate investment platform to develop an open API in 2019. We continue to be committed to using the latest suitable technologies to simplify the value chain and bring to a wider audience previously hard to access real estate investments.”

Paul Sonabend, executive chairman of Relendex

“We are building our platform software to accommodate the future implementation of open banking links but given the gating of most retail investors we cannot see any benefits in the near term. “Certainly, no plans for the next 12 months.”

Brian Bartaby, founder and chief executive of Proplend

“Open banking is all good on paper but will only be truly transformational for the likes of Proplend when the 90-day token consent limit is revised. “You cannot expect a client to refresh their credentials every 90 days for a five-year loan.”

Pat Farr, chief technology officer of Abundance Investment

“After a slow start we are really seeing the value of open banking materialise through its ecosystem of specialist providers, allowing platforms to unlock operational efficiencies and product benefits at a low cost of integration. “It has moved from a ‘nice to have’ to a ‘must have’ on our roadmap, as more and more customers demand a fast and frictionless experience when managing their money across platforms.”

Rob Pasco, co-founder and chief executive of Plend

“Open banking is ingrained into all our core processes, including credit risk, payments, fraud and anti-money laundering, so it is vital to our next 12 months of growth.”

Daniel Rajkumar, chief executive of Rebuildingsociety

“Open banking is pivotal to delivering more efficient financial services. “We’re using it to clear transactions efficiently ensuring lenders can extract their profits quickly.”

 

 

Narinder Khattoare, chief executive of Kuflink

“Open banking will be very crucial to our business over the next 12 months, as part of our underwriting process and within our credit committees, to help us make the correct decisions on lending to borrowers. “As our products increase so does our liability and risk. It is crucial we see the full extent of the borrowers’ incomings and outgoings. Far too often when asking for current account statements, borrowers will only give a copy of whichever account of theirs looks the most appropriate to be viewed by a lender. “Open banking allows lenders to make commercial decisions when lending. You will be able to see the total outgoings and other borrowings which may not come to light during an application process. “Later this year, we will launch a product where this will be incorporated into our systems so our underwriters will have real-time access at their disposal when underwriting deals.”

Lee Birkett, chief executive and founder of JustUs

“Open banking has been one of our everyday underwriting tools at JustUs and its development is improving all the time. “I can’t see any negatives with open banking, only positives, and better UX for those clients happy to share their data. “Web3, whereby people will own their own personal financial data and their own full reserve digital currencies, puts the fear of God into heritage fractional reserve banks as they will no longer be needed.”

Nicola Horlick, chief executive of Money&Co

“We will definitely be making use of open banking in the future. We are planning to launch an app which will use it. However, it will probably take more than 12 months for us to design and launch the app.”

 

Stuart Law chief executive of Assetz Capital

“Open banking will have importance to us over the next year in our overall plans to improve productivity and the customer journey.”

 

Rishi Zaveri, chief executive of Lendwise

“As a platform with a focus on inclusive lending, open banking is a key pillar to this approach. “In my opinion, what is important to monitor is the increasing rate at which it is being embraced by individuals as part of a loan application process and it is the responsibility of the big banks to enable greater access to make the technology behind open banking more seamless and efficient.”