How real estate uses open banking

4 min

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With the development of a virtual real estate market, technology has already revolutionized the way people buy and rent houses. Owners and landlords can post, while renters or buyers can view listings from the comfort of their homes (Casagrand, 2017). Furthermore, virtual home tours can now use 3D modelling to allow buyers and renters to virtually walk around the property. Where technology meets real estate it is considered proptech.

Proptech has transformed the real estate industry by offering services for real estate professionals, property owners, and investors, while also catering to end customers and their homes (Asper Brothers, 2019). And now, open banking is transforming proptech.
 

Real estate is changing

Open banking offers the opportunity to change how real estate is experienced for the better. Traditionally, landlords have to ask and wait for documents, like bank statements, from tenants before signing any contracts. And these then have to be assessed for validity (Farooqui, 2019). With open banking, landlords can instantly view and automatically verify the financial health of renters, and the whole process becomes more transparent for both parties (Farooqui, 2019).

Open banking is also changing real estate on a global level. Now tenants, especially those without a credit history, will be able to qualify to rent property (Farooqui, 2019). Also, social mobility across different countries is supported through open banking, since tenants no longer need to open country-specific bank accounts (Farooqui, 2019).

Real estate investment opportunities have also increased thanks to blockchain technology and open banking. The technology uses real estate tokens representing shares in individual real estate assets available for investment, and makes trading easier and more transparent (Asper Brothers, 2019).

Regarding home buying, open banking makes it easier, faster and more transparent. The advances in digital technology have resulted in great improvements in the mortgage application process (Richardson, 2021). The adoption of open banking helps to verify income, speed up identity confirmation and customer onboarding, and even helps with credit decisions (Smith, 2021).

Click here to learn more about How Mortgage Lending Uses Open Banking.
 

What is open banking?

Open banking is a banking practice that securely shares financial information, such as consumer banking transactions and other financial data, to third-party financial service providers (Estevez, 2020). Sharing data is done through the use of application programming interfaces (APIs) and only with the consent of customers (The Balance, 2020). Open banking is the driver behind both innovation and competition in the financial industry (Cahill, n.d.).
 

Why does real estate use open banking?

It is important for landlords, real estate companies and mortgage companies to access valuable information about the tenant’s current financial health. This helps them assess their ability to make rent payments or qualify for a loan. 

Open banking allows tenants to prove creditworthiness to landlords by allowing direct and secure access to income information. Furthermore, open banking fills in the information gaps where credit bureau data isn't available by providing reliable information about tenants’ income levels and financial stability. Finally, for loan brokers, open banking automates matches between lenders and loan applicants by enabling access to more detailed information that allows for better lending decisions.
 

Some real estate companies you should know about

Goodlord is an award-winning lettings platform that works to manage the entire tenancy process in one place. Goodlord uses open banking to enhance functionality and service offering to letting agents, landlords and tenants (Goodlord, 2018).

Canopy is a real estate platform that lets renters prove they're reliable without having to fill in any paperwork. With open banking, the platform verifies income and past rental history of tenants and shares the data with letting agents or landlords (Farooqui, 2020).

Multiply is a financial advice platform that allows users to save, invest and buy a home. Multiply uses open banking to gain insights into customer spending which is used for automated financial advice (Multiply.AI Use Case, n.d.).
 

What’s to come?

Open banking has the potential to widen access to more useful, affordable and comprehensive financial services for everyone, including tenants (Landlord Today, 2020). For landlords, real estate companies and mortgage brokers, open banking will continue to provide additional and more accurate data regarding renters and buyers (Landlord Today, 2020).

Open banking in general is getting pushback from regulators. European banks were required to implement the testing of financial solutions against simulated bank environments (Farooqui, 2019). That being said, the mission of open banking has become about expanding customer choice, and this also applies to rental payments, mortgages and any other property-related payments (Farooqui, 2019).
 

References

Asper Brothers. (2019, October 24). PropTech – what is it? See examples of tech solutions for real estate companies. Asper Brothers.
https://asperbrothers.com/blog/what-is-proptech/

The Balance. (2020, October 11). What Open Banking Is and How It Will Affect You.
https://www.thebalance.com/what-is-open-banking-and-how-will-it-affect-you-4173727

Cahill, H. (n.d.). InvoiceFair. The Evolution of Open Banking: Connectivity breeds digital competition.
https://invoicefair.com/the-evolution-of-open-banking-connectivity-breeds-digital-competition-081118/

Casagrand. (2017, September 18). How technology has changed the real estate industry. Casagrand.
https://www.casagrand.co.in/blog/technology-changed-real-estate-industry/

Estevez, E. (2020, August 27). Open Banking. Investopedia.
https://www.investopedia.com/terms/o/open-banking.asp

Farooqui, T. (2019, November 13). The Property Industry Needs to Open up to Open Banking. Propmodo.
https://www.propmodo.com/the-property-industry-needs-to-open-up-to-open-banking/

Farooqui, T. (2020, Febuary 6). Why landlords should be embracing open banking. Landlord Today.
https://www.landlordtoday.co.uk/breaking-news/2020/2/why-landlords-should-be-embracing-open-banking?source=othernews

Goodlord. (2018, July 23). Goodlord Announces Partnership With Open Banking Provider Truelayer. News Agent.
https://blog.goodlord.co/goodlord-announces-partnership-with-open-banking-provider-truelayer-

Landlord Today. (2020, February 6). Why landlords should be embracing open banking. Landlord Today.
https://www.landlordtoday.co.uk/breaking-news/2020/2/why-landlords-should-be-embracing-open-banking?source=othernews

Multiply.AI use case. (n.d.). Open Banking Use Cases.
https://openbankingusecases.com/apps/multiply-ai

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Article by

...Laura Aasheim
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