Having formally become part of the European banking system in September 2019, Open Banking is enabling lenders to offer businesses and consumers a range of affordable and secure products – and it’s cutting decision times on financial solutions from months to days.
PSD2 (the Payment Services Directive 2), which enables Open Banking, came into force across the European Union at the end of September 2019, marking one of the biggest changes for banks and credit providers in the past decade.
This new era of Open Banking and open data is set to revolutionise the speed and scale of credit applications, with Experian predicting it will lead to far greater accuracy in decision-making.
Experian is now already handling around 25 million UK data-requests every month – approximately 40% of the country’s total. Now, EMEA customers are set to follow suit by leveraging the new opportunities offered.
Here are five ways that Open Banking can help your business to grow:
Financial inclusion and affordability
Representing 99% of firms in Europe, small and medium enterprises (SMEs), are a huge potential opportunity for lenders. However it’s often difficult for them to prove their creditworthiness, often making it harder for them to secure loans. By encouraging customers make their transactional data available, lenders can get a clear understanding of all their revenues and outgoings and get clarity on their true situation, so they can offer the best product for the business’ needs. Open Banking also enables institutions to be much more inclusive for consumers, as the open data available to lenders can help them to evaluate the customer’s situation more effectively, identifying the products that best suit their needs and, crucially, they can afford to pay back.
By enabling consumers to choose how and who their data is shared with, Open Banking gives institutions greater visibility of their finances. In doing so they can offer products that are much more bespoke to the individual, with the costs and benefits to match their specific needs. In an industry that has been accused of being opaque and confusing in the past, Open Banking enables lenders to clearly show consumers what they can offer vs their competitors – and increase the chance of a sale as a result.
While the integration of PSD2 and the Strong Customer Authentication requirements are designed to reduce the risks of fraud, they can also increase friction for customers as they attempt to complete online purchases. Open Banking helps to manage this, smoothing the user experience in the online economy. With the rich data sets that Open Banking opens up, banks and lenders can verify the user much faster, ensuring a quick and secure service.
Better data analytics means faster results
There is a growing trend of investment in analytics to tackle the rising costs of customer acquisition and the impact of bad debt. Research by Forrester shows that four out of five CEOs now readily acknowledge the significance of data, analytics and AI to their growth, a trend that is only expected to continue as more transactions move online. As richer data sets become available, they enable banks to gain greater insight into consumers’ spending habits, creditworthiness and fraud risk. And, when incorporated with the best-in-class analytics solutions, they can make decisions much faster. Doing so enables banks to cut lending decisions from months to days, and helps to drive growth for the business.
As Open Banking is fundamentally about opening access to data, the information it makes available also helps to stop fraud. With 58% of businesses suffering from data fraud across EMEA according to Forrester, it’s vital that banks and lenders can identify where and when a loss takes place, so they can stop it before it happens. Applying machine learning to fraud analytics can help to flag suspicious transactions much faster, enabling banks to protect consumers more effectively. With 34% of firms saying that loss of customers has the greatest affect on their business, Open Banking can add that crucial layer of protection for both the organisation and its patrons.
Open Banking is one of the biggest revolutions in the European banking system for many years, and it’s set to benefit both lenders and customers. From enhanced transactional analytics that enable better quality affordability assessments to the ability to identify and combat fraud faster, Open Banking is enabling lenders to achieve far higher accuracy in their decision-making and offer true value to their customers.