Why lenders need Open Banking

The lending industry is key to growth and support in many sectors. However, there are many inefficiencies in the process for lenders and their customers. Innovating and exploring Open Banking connectivity, will enhance the availability and facilitation of credit.

What is wrong with the current lending processes?

As a consumer or business, applying for a loan or credit can be time consuming and difficult. When applying for a mortgage or loan, printing out statements and waiting for the bank to make a decision can be frustrating and the amount of manual work that remains part of the process, can slow it down significantly.

Another issue in the lending industry is the use of traditional data sources such as credit scores, which hinders the lenders ability to accurately assess applicants. Lenders are also reliant on the data which the consumer provides through online forms. Therefore lenders are not able to provide applicants with the correct or most effective financial product for their situation.

A study by uSwitch found that the proportion of those turned down or offered poorer rates is as high as 57% for 18-34 year olds. Not to mention businesses, in the current economy there is a continuous fear that without support, many businesses will be forced to shut down.

How could lenders use Open Banking today?

AIS - Account information services can be used to link lenders to customers financial data that is held by banks.

Using AIS would allow customers to give lenders consent to access financial information directly from the account held by banks, through Open Banking APIs. Having access to personal data, spending habits and transaction data for each individual customer, would allow lenders to personalise loans specifically to each individual or business.

In some cases, lending decisions could be automated based on the data that is shared via Open Banking. Whereby data enrichment or categorisation would allow for easier affordability assessments and financial profiling. Lenders would no longer be forced to make decisions based on generalised or out of date data sets, but on accurate real time data.

Open Banking connections are also extremely helpful for lenders looking to assess those with thin credit files. This is partly due to some 18-34 year olds having never received a loan, credit card, mortgage etc, so they would find it hard to be approved for credit. Using Open Banking would allow lenders to access the available financial data on individuals with thin credit files, allowing them to assess each applicant more effectively. This could open up loans to those who may have been denied credit previously due to their lack of credit history.

PIS - Payment initiation services can be used to reduce fees on payments and increase speed significantly.

Lenders predominantly accept card payments and direct debits when consumers are paying off their debt, which of course, carry a transaction fee for each payment. Open Banking payments could offer much lower transaction fees which would reduce the total amount lenders pay when receiving repayments. These cost savings could be reinvested into innovative lending options, increasing consumer choice and enhancing the efficiency of the lending process.

However, saving on fees is not the only benefit. Speed of transaction is also another benefit of Open Banking payments. Without the need for middlemen or card payment providers, Open Banking payments are bank to bank, meaning there is no delay in receiving payments and could dramatically improve the reconciliation process. This would allow lenders to balance the books more efficiently, consumers would not have to wait for funds to clear or show in their account, it could happen instantly.

To find out more about Open Banking payments and the benefits that they have on various industries, download our free payments ebook here.

In summary, lenders who utilise Open Banking effectively will not only increase profitability and decrease risk, but will offer fairer and more accurate financial products for their customers. With Covid-19 destroying businesses and forcing millions into difficult financial positions, sustainable and effective lending will be relied upon to kickstart the economy. Open Banking is the key to enabling the innovation needed within the lending industry.


Open Finance is transforming financial services and spreading across further financial products and services. We explore some of the immediate use cases where open finance could make a difference right now.
Financial services

Joe Terry

19th June 2020

5 min read

3 examples of what Open Finance can do right now
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18th December 2019

13 min read

What is Open Banking?

You’ve heard about it. You might’ve even used it. But do you know what open banking really is, the products and services it powers, and how it works? And did you know that it actually refers to two separate things?

A Reverse Payment is an essential functionality for a merchant when using Open Banking, ultimately Open Banking reverse payments are refunds. However, they work in a slightly different way to traditional refunds, hence why they are called reverse payments.


14th October 2020

3 min read

What are Reverse Payments in Open Banking?

Simply put, a reverse payment in Open Banking is a secondary payment to the original payer for the same monetary amount, effectively ‘refunding’ the original payment.

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