Open banking Lenders Best Friend

Open banking is a lender’s best friend. Here’s why!

| Article by: Abílio RodriguesProfile Image Abílio Rodrigues 4 min

Let’s cut right to the chase. There are a lot of things wrong with the current lending processes, be it for consumers or businesses.

Open banking can, however, mitigate these issues through account information services (AIS), that have the potential to accelerate decisions by tapping into accurate financial data provided by state of the art banking APIs.

Even more, payment initiation services (PIS) based on open banking offer much lower transaction fees, saving costs that can be channelled to improving business operations. But let’s take a more in-depth look at how open banking is a lender’s best friend.

For businesses, the use of traditional sources of information — like credit bureaus — does not allow for a precise assessment of applicant's current financial information. Furthermore, companies rely on information provided by the client for credit checks, and therefore have to trust that they do not try to dodge some hard questions.

For consumers, applying for a loan or credit means a lot of time wasted due to bureaucratic procedures. If a mortgage or working capital facility is what you need, good luck finding all the statements to print and file, besides having to wait for the bank to make a definitive decision.

The amount of manual work needed to get approved is overwhelming, and can also further slow down the process. This is true for all parties involved.

As a result, lenders are unable to provide the best service possible, and have a hard time meeting customers’ expectations. And let’s face it, today's market is heavily reliant on credit and loans, especially for SMEs that, without support, are probably doomed to go out of business.

Account Information Services: faster and safer loans

We are lucky, however, to be able to count on open banking services like account information, that can access financial information directly from banks, through secure APIs. This information can then be sorted and reveal patterns like spending habits and transaction data.

This enriched data allows lenders to offer personalised loans that cater to the specific needs of a business or individual. Account information services can even promote the automation of lending processes, with three great advantages for all parties involved:

  1. Faster and safer processes: data is shared in real-time, accelerating decision-making and approval;
  2. Accurate risk assessment: access to relevant information improves analysis and meets not only customers' expectations, but also companies’ needs;
  3. More satisfied customers: if a process is convenient and reliable, everybody wins. Customers’ get what they need, and businesses multiply revenue while reducing risk;

Payment Initiation Services: no more fees

One of the biggest bottlenecks to a smooth lending process are the transaction fees associated with each payment. Lenders usually accept card payments or direct debits from consumers, which opens the door to considerable sums being taken out of their pockets.

Open banking sustained payment solutions are the obvious counteraction to this issue, by dramatically reducing the amount lenders pay when they receive their rightful repayments. Here are its main advantages:

  • Increased consumer choice
  • More efficient lending processes
  • Faster and safer transactions
  • Savings that can be channelled to other business ventures

If saving money is very important, the speed of how transactions are processed is certainly not a secondary benefit.

Open banking payments remove middlemen from the picture because they are bank-to-bank oriented. This operation improves not only the reconciliation process, but it also ends delays in receiving payments.

The advantages are obvious for all parties involvedfunds are instantly available on the clients’ account, and lenders can have a more granular and efficient control over their books.

Here is the bottom line: open banking allows lenders to save money, increase revenue, decrease risk and offer better solutions for their clients. As if this is not enough, the lending process is fairer, due to factors like better data acquisition, real-time income verification and improved invoice settlement.

All of this has a great impact on peoples’ lives, but also on a sustainable economy that understands effective lending as a powerful ally.

Open banking has already moved from being considered merely a compliance challenge, and instead has now become a great commercial opportunity, a new and improved way of delivering financial services.


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