Open banking provides lenders with access to live financial data from customers, enabling them to make more informed and fairer decisions when reviewing applications for credit.
This is because lenders will be able to see customers income and spending habits, allowing them to make better and more confident decisions, which creates a fairer marketplace for everyone.
What does a fairer marketplace look like?
A fairer marketplace means that applications for credit that may have been unsuccessful or accepted at a higher interest rate, would be accepted and/or the interest rate doesn’t increase.
As lenders gain more confidence in assessing applications for credit, you can be more confident in either being accepted for a product or receiving the interest rate advertised.
Why is this important?
With the customers’ permission, banking data is made available to lenders through an integration technology (API). This integration is being used by challenger banks, fintech firms, tech companies and credit reference agencies to open up the financial services industry and provide consumers with products better suited to their individual needs.
What are the risks?
With lenders and third-party applications having more access to your information, this can increase the level of risks. Currently, in the event of a data breach, you may only have a limited amount of information stolen.
Under open banking, in the same scenario, there is the potential for information from multiple accounts to be stolen.
Companies, however, should ensure that they have adequate levels of security to prevent data breaches from happening.