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Open Banking and the future of finance

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Open Banking is an exciting proposition, in which all customer and business banking information is easily open and available to potential lenders and financial providers.

From credit scores, income, bank statements, and financial transactions, this information is readily available through APIs, bypassing traditional financial rails and card networks. For businesses and consumers, this offers exciting opportunities to speed up loan applications, mortgages, card payments, and all other day-to-day financial transactions.

This week, start-up TrueLayer, which powers open banking, raised $ 130 million, giving it a valuation of $ 1 billion, underscoring the size and potential of this industry.

But despite its benefits, questions remain as to whether open banking will be the future of finance. We chat with industry experts to find out more.

Access personal data

Open banking can allow potential lenders to see your data when they request a financial product. There is no need for the lender to perform credit checks, request payslips, or request bank statements, as all of these are available immediately.

“Open banking is a secure way for you to authorize trusted lenders and providers to access your personal financial data,” says Alfie Usher, Founder of Forces Compare.

“Information like your income and spending habits can now be shared with lenders so they can make smarter, smarter lending decisions when it comes to applying for credit and loans. “

“Previously, an underwriter might have to read your bank statements and manually verify your bank accounts and spending habits. However, all of this can now be done digitally and much faster with open banking. “

“So while this may be the future of finance, the uptake of this has been quite slow, only because clients have to consent to it upon request – and so far a lot of people don’t. not want to show their entire financial history before the loan has even been approved.

Accelerated Mortgage Loans

But for mortgages and home loans, using open banking is a very interesting prospect, according to Frank Clarke, SPF Finance short-term client relationship manager at Octagon Capital.

“Applying for any type of mortgage loan is always a real headache and when a client applies, they have to share all of their financial documents and bank statements, which makes the process very long, whereas in reality many people are time sensitive. “

“There is no real standardization of digital financial information in terms of storage or communication between different brokers, lenders and institutions. So not only is the average mortgage approval extremely long, but customer data is very vague and risky. “

“So open banking, even if it is not yet fully in effect, is very promising. Having one place where all lenders can access fast, real-time information is very transparent and good for compliance. “

Prevention of money laundering

Also in the context of data access, open banking could also play an important role in the prevention of money laundering.

“With open banking, you basically have a lot of data in one place,” says Nadeem Siam, Founder and CEO of Fund Ourselves.

“Soon, open banking will use AI to create more learnings on this data and develop models to understand customer behavior. So if there is criminal activity or money laundering, in theory it should be easy to pinpoint due to abnormal behavior.

Faster payments

However, for some, the future of open banking lies in its ability to make faster payments or complete transactions faster, says Richard Dent, founder of Finger Finance.

“While with personal loans or auto financing, the focus has always been on manual underwriting, we have the potential to get around that if you have all the customer information right away,” he says. “There’s also nowhere the customer can hide their income or their financial situation because we get it straight from their bank and a really accurate number.”

“The only thing stopping us from making open banking the future is the reluctance of customers who are willing to share all of their data so openly with a new company or a stranger. Not to mention that if someone hacks into a lender’s system, they get a significant amount of personal data and more than ever before. “

“So while it presents incredible possibilities, it may take time for consumers in the UK to fully embrace open banking and more education by tech companies and banks for it to become widely accepted and more mainstream. “

Customer relationships

The introduction of APIs will accelerate the execution of transactions with great potential for improvement in terms of improving customer experience and relationships.

“Faster payments are real-time transactions, but open banking APIs represent an evolution to real-time activities,” says Yogesh Sholapurkar, COO, sales representative at Close Brothers. “As a business, you can create propositions that you couldn’t before because payment can now be part of the customer journey. For example, look at car dealerships.

“Traditionally, the interaction has been between them and the finance company, with the transaction taking place the next day – so the customer can pay but cannot drive away. But with an API, they could transact instantly.

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