The pandemic has played a major role in accelerating the growth of a number of technologies in the UK, and the world of finance is no exception.
Over the past two years, Open Banking’s benefits have taken on a new significance, as many consumers have been on a financial rollercoaster since the outbreak of Covid-19.
After initially seeing a fall in usage during lockdowns, TransUnion data for 2020-21 showed that Open Banking transactions increased overall through the pandemic, reaching the highest volumes to date.
Coping with a polarised UK economy
For some customers, their financial situation will have benefited from lower expenditure on transport due to working from home, or reduced spending on leisure activities. Meanwhile, others have seen their income decrease due to furlough, redundancy or may have voluntarily decided to change career field entirely, as part of the shift in working culture.
This growing financial polarisation came across in TransUnion’s Consumer Pulse research conducted among 1,100 adults between 1-5 November 2021, which has been tracking the financial impact of the pandemic on UK consumers.
Our survey, at the end of 2021, showed that while 43% of people are feeling optimistic about their income despite the pandemic, almost a third (28%) are expecting a decrease in earnings.
Open Banking is increasingly playing a key role in helping lenders to obtain accurate information on the financial situation of existing and potential consumers, providing insights into their transactions, financial resilience, creditworthiness and ability to afford repayments.
By giving lenders a more granular view of an applicant’s financial situation and past activity, rather than just a snapshot at the point of application, Open Banking makes it easier to see a holistic picture of income and expenditure, reducing the need for supplementary income documentation.
Additionally, Open Banking empowers lenders to fine-tune their products to the new needs of their existing customers. This way, its proactive portfolio management tools help financial providers make informed decisions when reassessing creditworthiness and risks.
With Covid-19 restrictions ending and likely heralding a return to increased consumer spending, having an accurate view of an individual’s financial standing will be essential for finance providers.
Driving financial inclusion
A key element in the process of using Open Banking to help customers navigate their finances as we move through the pandemic will be helping those who might otherwise have trouble accessing credit.
According to TransUnion’s Consumer Pulse data, more than a quarter of UK adults, at 29%, considered applying for new credit recently but decided not to because they were worried about their credit history – indicating that the existing appetite may not be fully met.
Balancing this desire for credit with affordability assurance means Open Banking can be increasingly called upon to support secure and responsible onboarding of these underserved audiences during this turbulent time. This can help finance providers to expand their customer base, while also protecting the customer.
Currently, verifying applicants who may not have a detailed credit history, or who might have trouble getting credit altogether, tends to rely on manual, often resource-intensive processes.
The use of Open Banking, as well as allowing the relevant nuance required to cope with financial uncertainty, can also play a role in replacing these processes in a more cost-effective and resource efficient way by accessing data from current accounts and credit cards.
Conveying the benefits to consumers
It isn’t just lenders that can benefit from Open Banking, however. Consumers also need to know why the technology can help make their life easier, particularly considering that they are being asked to give access to financial information in their bank accounts.
This can naturally cause aversion or worry for some – for instance, if their financial situation has changed as a result of the pandemic and the cost-of-living crisis.
That’s not only about them understanding what Open Banking means, but about building details on its benefits into user journeys, as well as offering consumers a faster and more streamlined borrowing experience by reducing the amount of time taken up with collecting and submitting supporting documentation.
Once consumers have taken the step to adopt a service powered by Open Banking, the Open Banking Impact Report developed by the Personal Finance Research Centre at the University of Bristol showed that 77% agree they are now better able to keep track of their regular monthly payments and avoid unnecessary expenditure.
From the perspective of access to credit post-pandemic, by improving data and putting the consumer in the driving seat with their financial information, we are likely to see credit score improvements and ultimately, better product choice for customers.
At TransUnion, we see first-hand a continued desire for credit, with one in four consumers planning to apply for new credit in the coming 12 months, according to our research. Open Banking presents the opportunity to meet this need reliably, responsibly, and effectively for both lenders and consumers.
In the long run, conveying the benefits on offer, reinforcing trust with the consumer, and helping to make the income verification process friction-right is what can enable Open Banking to continue growing and supporting businesses and consumers alike, as we collectively navigate our way out of the pandemic.
Written by Nino Ocampo, senior director of Open Banking at TransUnion in the UK