Open Banking Loans


Since its early days, open banking has been critical for the development of the lending industry, having become mainstream for many loan and credit businesses. The facilitated secure access to customer's financial data have streamlined the process of risk assessment for loans and credits.

With open banking, lenders can now offer enhanced loan application processing, that result in a better customer experience and a bigger variety of available options. With direct access to open banking data and the ideal insight tools, shores that used to take long time and performed manually, can get done almost instantaneously.

How does open banking help customers to get a loan?

To be able to get a loan approved, customers need to prove to a lender that they can afford to pay their money back. Through traditional methods, this might be very hard in many situations. The bank institution knows exactly how much money a customer is earning per month, and how much do they spend, being the ideal source of information.

With open banking, they allow third party providers (TPP) to access this information via PSD2 compliant secure application programming interfaces (APIs).

Two important facts important to highlight:

  • Only TPP who are approved by the customer can access banking information
  • Open banking is only accessible by providers who are authorised by the relevant authorities in the European Economic Area, and the Financial Conduct Authority in the United Kingdom.

You can find a complete list of authorities in Europe that issue account information service providers licences in Europe here.

Open banking loans UK

In the United Kingdom (UK), open banking tends to be something that newer companies, such as fintech firms, have embraced. Usually, these businesses focus more on providing a great user experience and the best possible offers, instead of leaning towards more conservative methods.

There is a great variety of companies in the UK using open banking to provide customers with the best offers for loans and credits.

By embracing open banking, lenders can perform (almost) real-time customer assessments without relying on credit history or time-consuming analysis of bank statements.

Open banking loans bad credit

Traditional banking relies on credit history to make decisions on new loans and credits, making it impossible for someone with a bad credit history to get new loans approved. This is still the case even if a customer's financial situation improved considerably in recent months or even years.

With the use of open banking to make loan assessments, the same situation can have an entirely different outcome.

Instead of relying on credit bureau data, open banking lenders get financial information directly from the customer, being able to make accurate decisions almost in real-time. Thanks to data insights that can be tailor-made for each business needs, each transaction can be categorised and organised to make the decision-making process seamless.

Open banking personal loans without credit check

Just as any other loans, personal loans are as well influenced by credit checks, which determine if an individual can get a loan and how much money is allowed to borrow. If there are any red flags in the past regarding previews missed payments or an overload of active credits, it might become impossible to apply for a new personal loan.

With open banking, the traditional credit check process disappears, but that doesn’t mean customers don’t go through an evaluation process. Instead of going through the loan history of an individual, lenders opt for a more realistic approach by making a current financial health assessment. This is possible only with the real-time access to banking information provided by open banking application programming interfaces (APIs).

This access allows lenders to have an instant overview of information about income/outcome volume, spending habits and affordability.

Open banking loans for “first time customers”

With the traditional borrowing process, it can be quite hard to be able to get a first loan or line of credit, since lenders access their customers with the information provided by credit bureaus.

Usually, this information includes details about personal details, how many active credits or loans are outstanding, if a person ever missed or defaulted loan payments or if there are any processes in court against the customer.

By gathering this generic list of information, lenders are presented with a credit score that represents the risk level of borrowing money to a certain individual.

With open banking, first time customers have no problems in getting a loan as long as they have a stable financial situation. Open banking allows lenders to do a screening process that evaluates a customer current situation, regardless of having previous loans/credits or any of the previously mentioned information.

With clear access to information about current income/outcome of money from a customer account, lenders can make an informed decision on what loans they can offer each individual customer.

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