Why Lenders Are Requesting Open Banking
With the introduction of Open Banking, loan applications will run smoother and safer for both customers and lenders.
Open banking access allows lenders to directly access your banking information, such as bank statements, so you don’t need to manually send documents.
There are many reasons why lenders are leaning towards open banking access, both for their own benefit as well as their customers.
In short open banking allows lenders to:
- View statements being used as supporting documents for loan applications
- Speed up approval as they do not need to wait for you to provide documentation
- Increase security as potential fraud is reduced through doctoring of accounts
There are strict protocols in place both with your bank as well as the lender to ensure that your banking information is safe and only authorised people can access your information.
When you give a lender open banking access, they are able to view your statements for a 24 hour period. They are granted viewing access only, they are not able to make any changes to your accounts, carry out transfers or make any payments.
What is Open Banking?
Open Banking is an open platform that allows lenders, Banks and financial institutions access customers' financial data securely.
Since January 2018 when the Open Banking directive, also known as PSD2, came into force, the UK’s biggest banks have had to make their data available in a more standardised format, allowing lenders and other parties to access information more easily.
Open banking has revolutionised the way lenders can access bank information by providing a more efficient platform to share data.
It uses application programming interfaces (APIs) to allow data to flow between two parties, enabling faster processing of customer loan applications and better security.
It is a secure process that enables banks to share their clients' data with lenders and any other third-party providers you give permission to. Instead of having to download and provide your bank statements in PDF format, most lenders are now able to access the information they need directly via open banking.
How Does Open Banking Work?
Open Banking works by securely connecting the customer-authorised financial institutions to the lender.
When you first grant access, your transaction data is shared with the lender via APIs in real-time. The APIs allow lenders to gather information from your bank, such as account balances and recent transactions, allowing them to quickly assess your creditworthiness.
This ensures that lenders can provide accurate loan decisions in shorter timescales.
Open banking is becoming more popular among borrowers making loan applications as it same them times when making applications. You no longer need to compile and supply multiple documents to support your application and minimise any requests for more banking information from lenders.
The Benefits of Adopting Open Banking for Lenders
The goal of open banking is to improve digital customer experience while providing more accurate and reliable data sharing.
By adopting Open Banking, lenders can take advantage of a wide array of benefits.
It is seen as a more secure and efficient way access to customer financial data, improve fraud detection by evaluating customers’ transactions over time, as well as a reducing the number of manual processes required to gathering and process customer data.
The ease and speed of accessing an applicant’s data allows lenders to gain a better understanding of payment behaviour and creditworthiness on an accelerated timescale. This means quicker decisions and payouts for the borrower.
Whilst RLA Capital cannot offer financial advice, we can provide various business loans to assist with cash flow. RLA Capital would recommend speaking with your accountant if you are experiencing cash flow problems.