Open banking has many benefits for lenders, including peer-to-peer lending platforms, and it has been more important than ever during the pandemic.
But in the three years since its introduction in January 2018 with great fanfare, is the data sharing initiative really making waves in the industry?
Platforms can use open banking to better assess borrower affordability using real-time data rather than old bank statements. It also helps reduce friction in their processes and deliver an improved customer experience as well as faster loan decisions. Open banking can also help reduce fraud, for example by confirming beneficiaries.
These benefits were even more vital during the Covid-19 crisis, allowing lenders to assess affordability, reduce fraud, and offer faster loan decisions to borrowers before going elsewhere for funds whose they need it so much.
Read more: Open banking boosts pandemic lending
However, only a handful of P2P platforms currently use open banking, although this has increased over the past 18 months.
In 2018 Works Loan in partnership with Crédit Kudos to deploy open banking for credit applications and the platform has demonstrated its advantages. COO Jonathan Kramer previously said the platform uses it to reduce friction in its processes and improve customer service., and the benefits will shift to underwriting and meeting the affordability requirements of the City regulator.
In 2020, ArchOver announced that it had partnered with analytics firm AccountScore to provide open banking data for use in its credit and monitoring teams and last year Rebuild the company had access to an open bank for himself and his executives after his technology provider White Label Crowdfunding partnered with TrueLayer.
Leap Lending was launched in January last year with the USP requiring all of its borrowers to use open banking and last month Kuflink launched a beta version of a new app for investors, with plans to add open banking functions.
Open banking brings a series of advantages for platforms. But in three years, adoption has been slow, with only a few platforms using it. However, this seems to be improving with the increasing adoption of the data sharing initiative and now more than two million consumers use it.
Read more: CMA launches an open banking consultation
The Open Banking Implementation Entity has estimated that since January 2020, an average of 160,000 users have switched to open banking each month.
Funding Xchange Managing Director Katrin Herrling put it best when she explained why the slowness was expected and that there was nothing to worry about.
“The open bank is basically a nuclear power plant that someone places on green land which is an extremely powerful data source, but as you can imagine with a power plant on green land you need a huge infrastructure to get to the point where you can slice your toast in the morning, ”she said at the LendIt Fintech Europe Lending Innovation Summit.
Whether open banking is making waves in the alternative lending industry remains to be debated, but it is certainly swimming towards a brighter future.