## What is data enrichment?

Raw data, as the name suggests, returns a large dataset that can span years. You might use it to verify a customer’s identity, account details, transactions, or income. But raw data is messy and confusing with strings of text and numbers… and it gives little context. 

Take this transaction as an example: TESCO PFS BASINGSTOKE 2020/07/30 3803. At first glance, it could mean anything. But once enriched, it reveals a customer spent £10 at their local Tesco petrol station in Basingstoke. Much easier to understand, right? 

Put simply, data enrichment is the additional level of insight businesses can derive from raw data, like the example above. Getting these insights before would’ve needed an in-house data science team and costly technology. Now, data enrichment tools are ripe for the picking. 

## So, who needs data enrichment?

Data enrichment gives lenders, brokers, car finance providers and much more access to a comprehensive overview of potential buyers. For instance, let’s say you had a large one-off transaction on your statement. Data enrichment would automatically recognise this as a one-off rather than a recurring transaction. The result? Boosted affordability scores.

## What about data categorisation?

While data enrichment turns data into insight, categorisation goes one step further by sorting data into categories such as shopping and bill transactions. Let’s say you’re trying to understand an applicant’s financial situation for a loan application. You’d want to know how much they get paid, when, and how they spend it, right? Data categorisation gives the full picture of their spending habits. 

## Data enrichment use cases 

__1. Affordability check__

Affordability is key for lenders, whether it’s consumer or business lending. But, when only considering a small snapshot of a potential borrower’s financial position, it can be difficult to understand real affordability. Data enrichment enables lenders to analyse financial data for up to two years, providing a clear and accurate affordability profile.

__2. Creditworthiness assessment__

While affordability determines whether an applicant can __afford to borrow__, creditworthiness looks at how likely they are to __pay it back__. Credit scores are a fundamental deciding factor. But, those three-digit numbers disregard millions who are still improving their finances. Data enrichment allows lenders to access real-time insights, so they can make more informed decisions about who to lend to.

*Want to see how Juni use open data enrichment and banking to improve their creditworthiness assessments for ecommerce businesses?* Check out their case study [here](https://www.yapily.com/blog/open-banking-case-study-how-juni-supports-ecommerce-businesses).

__3. Income verification__

Whether it’s lending or renting, proof of income is at the core of a decision. It’s a lengthy process… *particularly* for those who are self-employed. In fact, business owners are twice as likely to be rejected for a mortgage. But with data enrichment, income verification is instant. No payslips, no bank statements, and no tax returns.

__4. Balance Prediction__

Data enrichment enables businesses to predict their cash flow position based on prior balances and see balance trends across accounts. Lenders can also use it to determine whether a customer’s balance will go up, go down, or go into an overdraft (which also helps businesses and consumers better manage their money).

[Get in touch](https://www.yapily.com/company/get-started) to learn more about how Yapily’s [data enrichment tool](https://docs.yapily.com/pages/data/data-plus/overview/) can help you view spending habits, predict balances, identify recurring transactions, and better understand affordability. Still exploring your options? Check out our [Open Banking Buyer’s Guide](https://www.yapily.com/explore/open-banking-buyers-guide) to understand how to vet providers and choose the best partner.

What’s data enrichment, and why do you need it?

## Backdrop 
A fall in the pound and the expectation of a sharp interest rate hike have resulted in a number of lenders temporarily halting mortgage offers to new borrowers, while other providers are increasing rates on a number of fixed mortgages. 

Economists expect to see interest rates more than double to [5.8%](https://www.bbc.co.uk/news/business-63041679) by April 2023 from current levels of 2.25%. This is 1.8% higher than the originally anticipated rate of 4%. 

Only a year ago, mortgage providers were battling to attract borrowers and it was possible to lock in fixed rates of less than [1%](https://www.theguardian.com/business/2022/sep/22/what-does-the-banks-interest-rate-hike-mean-for-peoples-finances) for 2-5 years. Now, even the most competitive lenders are only offering fixed-rate mortgages to those with large deposits, with prices still reaching [4.5%](https://www.theguardian.com/business/2022/sep/22/what-does-the-banks-interest-rate-hike-mean-for-peoples-finances). First-time buyers are expected to be hit the hardest and could struggle to get a mortgage on [affordability grounds](https://www.ft.com/content/1795e739-6e11-43cd-bf92-d7d2ad0324b2), with a number of lenders pulling out.
### But what does this mean for homeowners and potential buyers? 

__For homeowners:__ The hit to UK households won’t be immediate, with the majority of borrowers now locked into 2-5 year deals. According to the Financial Conduct Authority (FCA), about [74% of mortgages (6.3m) are on a fixed rate](https://www.theguardian.com/business/2022/sep/22/what-does-the-banks-interest-rate-hike-mean-for-peoples-finances), with some homeowners who are lucky to have lengthy remaining terms protected against hikes for the time being. But [600,000 fixed-rate mortgages are due to expire by the end of this year, with a further 1.8 million expiring in 2023](https://www.ft.com/content/1795e739-6e11-43cd-bf92-d7d2ad0324b2). Pantheon Macroeconomics predicts that the average household refinancing of a two-year deal will be looking at a monthly repayment [surge of 70% from £863 to £1490](https://www.ft.com/content/1795e739-6e11-43cd-bf92-d7d2ad0324b2). 

![Mortgage prices hikes](//images.ctfassets.net/3ndxs7efitel/19Ik9ohFFTfqibDnSK8RFa/1dc83872cb82f941d9bb8f1d1af7c865/Mortgage_prices_hikes.png)

Source: [BBC news](https://www.bbc.co.uk/news/business-63046919)

__Buyers:__ Young, first-time buyers may now have to prove that they can afford up to a 7% interest rate hike as a record number of lenders pull out. Those that were looking to move soon may want to reconsider as it’s predicted that prices could fall by as much as 20%. 

__Renters:__ Renters aren’t safe from the market chaos, either. It’s predicted that landlords could pass on rising mortgage costs to renters. This, with the cost of living crisis, is leading to panic across the market. 

## Could open banking help? 
Having been around for just four years, open banking is a relatively new innovation. But, it’s proved to be invaluable in helping consumers and businesses to take control of their finances by sharing financial information that was previously only available to banks. 

Consumers and businesses can now choose third-party providers (TPPs) like budgeting apps, lenders, and personal finance management platforms rather than relying solely on the bank to do what’s best for them. This opening up of data supports consumers and businesses by providing them with enhanced insights and access to fairer financial services that are tailored to their specific needs that enable them to make better-informed decisions. Data enrichment could be the answer 

Account Information Service Providers (AISPs) are one type of TPP that - with consent - collect financial information like account details, balances, and transaction information from banks. An example of an AISP is [Credit Kudos](https://www.creditkudos.com/) who provide businesses with financial information insights to help them make better and more informed lending decisions. With the use of [data enrichment](https://www.yapily.com/blog/data-enrichment-in-open-banking/) they can take this data and refine it to provide actionable insights. [Yapily](http://www.yapily.com) provides data enrichment to give a full picture of spending habits, predict balances, identify recurring transactions and better understand affordability.
### How open banking can help buyers provide access to accurate affordability scores

Data enrichment gives lenders access to a more sympathetic overview of potential buyers. For example: let’s say you had a large, one-off transaction on your statement. Data enrichment would automatically recognise this as a one-off rather than a recurring transaction. The result? Boosted affordability scores. 

Rather than looking at a snapshot of your spending, which may include an unusually large payment or change of employment, open banking offers lenders the chance to make informed decisions based on a more accurate view of your finances. Bonus: open banking ensures banks aren’t limited to their own financial data. Instead, they can view data across all accounts, strengthening the borrower's ability to demonstrate creditworthiness compared to outdated scoring systems. 

In the past (and before looking to access credit like a large loan or mortgage), consumers may have been extremely conscious about avoiding one-off bills or changes of circumstances. Now, with open banking, the data shows a more sympathetic overview. This is particularly useful when trying to negotiate mortgages before another hike, as banks are more likely to lend to those who can clearly demonstrate they can afford increases. 
### Understanding affordability
Affordability is key for lenders. But, when only considering income or a small snapshot of a potential borrower's financial history, it can be difficult to properly understand real affordability. 

Open banking enables lenders to analyse financial data for up to two years, providing a clear and accurate affordability profile. This is particularly relevant for first-time buyers who have to prove that they’ll be able to meet mortgage repayments, even  if interest rates hit 7%. This also protects borrowers from default, ensuring they are only lent what they can afford rather than an amount based solely on income. 
### Proactive conversations to support borrowers and avoid default 
With open banking, access to data is automated. Consumers are just required to [re-consent to the connection](https://www.yapily.com/blog/90-day-reauthentication-changes/) every 180 days. This seamless flow of data enables mortgage providers to see when large, unexpected bills are paid and understand how affordability changes over time. Equally, if there is a boost in income, this will increase lender confidence. 

The benefit for both lenders and borrowers is that parameters can be set up to trigger alerts that can lead to proactive discussions, rather than waiting for borrowers to fall behind on their payments before taking action. This is particularly important for lenders on a variable rate mortgage who may struggle to meet increasing payments. Lenders can champion their customers, and provide assistance or recommend financial products that can offer support when needed. 

### Technology to support landlords in navigating an uncertain landscape 
Banks can utilise open banking to ensure they're lending sustainably across all accounts. Beyond this, there are also other solutions on the market to support landlords as they navigate their way through this period of uncertainty. 

[Arthur](https://www.arthuronline.co.uk/), for example, is an award-winning property management software platform. Yapily enables them to digitise the tenancy journey and reduce the manual headache of rent payment reconciliation through open banking. The lettings sector is notoriously slow at reacting to changes in consumer behaviour, which now more than ever poses a risk. 

Arthur brings everything to one easy-to-use platform, simplifying operational processes to establish a fully integrated infrastructure around which businesses can improve their service offering and scale sustainably. Property managers can confidently manage and streamline their business’ financial management with Arthur’s powerful financial module, combined with an integrated live bank feed, and intuitive reporting functionality powered by [Yapily Data](https://www.yapily.com/open-banking-financial-data/), to ensure that their operation can swiftly generate the data and actionable insight they need.
## To recap…
Both lenders and borrowers will benefit from access to data insights and a proactive approach to managing consumer relations. Open banking can’t solve the uncertainty around soaring interest rates, __but it can help provide clarity on other aspects such as affordability__.
### … for lenders
The cost of lending is increasing, which in turn reduces the appetite for risk. Banks will be more careful of who they lend to, and may require upfront fees or higher deposits to offer fixed-rate mortgages. 

Open banking data helps lenders find the best deal for consumers while building a clear financial profile and understanding creditworthiness based on real-time up-to-date data. Lenders will benefit from making more informed decisions that are no longer based on a limited snapshot, providing confidence in who they are doing business with. 
### … for borrowers
It’s a tough market for borrowers. With bills increasing across the board, there’s significant pressure on consumers to meet their financial obligations. 

Open banking empowers consumers to own their financial data and gain access to the support they need. Personal finance management tools like [Emma](https://emma-app.com/), allow consumers to connect their accounts and gain actionable insights including where they may be overspending on certain bills. By demonstrating positive financial behaviour, consumers are more likely to have access to better rates when searching for a new mortgage or renegotiating an existing agreement. 

Can open banking support mortgage providers and borrowers? 

how open banking can provide much-needed support.


## The problem

[Lenders](https://www.yapily.com/open-banking/lending/) relying on outdated credit scoring systems and archaic affordability assessments risk leaving millions of people without access to the right financial products, without acknowledging an individual's financial behaviour. Thin-file customers often have to turn to a solution that costs them significantly more in fees during the process, forcing them into more financial uncertainty and debt.

## The solution: [Yapily Data](https://www.yapily.com/open-banking-financial-data/)
By partnering with Yapily, Salad Money can now access real-time financial data. Salad Money can retrieve and analyse up to two years' worth of transactional data to provide NHS and public sector workers with an automatic review of their benefit and credit entitlement.

By accessing an individual's actual financial status, rather than incomplete credit scoring data - Salad Money can better serve a larger proportion of consumers. Consumers can also better understand their entitlements and improve their financial well-being for good.

> “By utilising Yapily’s open banking infrastructure, we’ve been able to gain access to accurate, real-time account data which has been instrumental in improving the financial wellbeing of NHS and public sector workers, identifying a potential £979,000 in unclaimed benefits so far.” - Tim Rooney, CEO, Salad Money 

## The impact
- The ability to identify a potential £979,000 in unclaimed benefits so far
- Provided benefit insight to over 26,000 applicants, informing them of the benefits they may be eligible for
- Over £20 million lent to over 19,000 individuals to help better manage their debt


60-second success story: Salad Money + Yapily

Discover how Yapily helped Salad Money improve the financial wellbeing of customers with access to real-time data powered by open banking 

Securing finance remains the biggest challenge for SMEs as the cost of borrowing is expected to increase. Research reveals that small businesses spend [24 hours on average ](https://www.hbs.edu/ris/Publication%20Files/17-042_30393d52-3c61-41cb-a78a-ebbe3e040e55.pdf)researching and submitting credit applications - despite facing a discouraging [80% rejection rate](https://www.fundingcircle.com/us/resources/business-loan-application-rejection-reasons/).

Although SMEs have a combined turnover of £2.6 trillion, lenders have been reluctant to grant them credit as they’re considered too high-risk. This reluctance has been embedded in a lending process that remains unchanged for decades - leaving lucrative opportunities on the table for lenders.

## Multi-billion pound finance gap

SMEs' ability to fuel economic growth makes them one of the most profitable contributors to commercial lending revenue. Yet, the lending process many providers rely on still hasn't been attuned to SMEs' potential - rejecting almost [100,000 applications](https://www.thegazette.co.uk/all-notices/content/100897) every year.

For hundreds of thousands of SMEs, a £22bn finance gap still exists that challenges their growth and survival. Lenders have an opportunity to bridge this gap and make access to credit fairer - starting with rethinking their business-lending model.

SMEs are by no means a uniform customer base but rather an eclectic mix of businesses with unique challenges. Treating SMEs like corporate customers or offering one-size-fits-all lending solutions means the multi-billion pound funding gap is only expected to widen. 

## Missed opportunities for the economy 

Over five million SMEs exist in the UK, accounting for 61% of employment and 52% of turnover in the UK private sector. Unrestrained from outdated strategies and legacy systems, they are the true innovators rethinking entire industries.

Fairer access to SME finance would have a significant positive impact on the economy - both financially and socially. Small businesses, in particular, help local communities thrive. Whereas startups are fundamental to job creation and shaping a sustainable future. 

The demand for accessible finance has given rise to fintechs entering the space with innovative lending models. These revolutionary lenders are taking a personalised approach, powered by the ultimate enabler in modern financial services: open banking.

## Lending reimagined with open banking

Before open banking, lenders depended on paper documents such as bank statements, proof of identity, tax return statements, and business expenses to make risk assessments. Open banking has streamlined this process, making credit assessments more informed than ever before.

By leveraging open banking, lenders can access reliable financial information pulled directly from the SMEs bank account through a secure, single API. Considering [99% of SMEs](https://www.moodysanalytics.com/articles/2021/open-banking-real-time-analytics-for-small-and-medium-sized-enterprises) use one bank provider, it's a rich source of data to quickly assess their true creditworthiness and personalise loans specifically to their circumstances.

Although, the potential for lenders using open banking doesn’t end there.

Access to SMEs financial data enables lenders to monitor the ongoing affordability of repayments, reducing the likelihood of nonperforming loans. Moreover, SMEs can initiate payments straight from their bank account by pre-populating account details and invoice reference numbers. This means less delay in receiving payments for lenders.

## The future of SME lending is open

In essence, lenders who leverage open banking to reimagine their lending processes will increase profitability and decrease risk. In doing so, they’ll offer fairer and more accessible credit products for SMEs. 

For SMEs themselves, it provides more prosperous businesses access to funding, inevitably strengthening the economy. Open banking enabled risk assessments also prevent businesses from borrowing funds they can’t afford to service, decreasing the number of non-performing loans and boosting lender profitability in the long run. 

With Covid-19 putting immense pressure on businesses and forcing millions into difficult financial positions, sustainable and effective lending is needed to kickstart the economy. Open banking is the way forward. 


How lenders can leverage open banking to close the SME finance gap 

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](https://yapily.com), 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](https://yapily.com). 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](https://www.yapily.com/blog/data-enrichment-in-open-banking/) 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](https://yapily.com/solutions/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.](https://yapily.com/payments-ebook)

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.


Why lenders need Open Banking 

The lending industry is under immense pressure and Open Banking could provide a well needed shake up. Making financial data available for lenders to make better lending decisions and use Open Banking payments to reduce their costs.

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Yapily blog

What’s data enrichment, and why do you need it?

Can open banking support mortgage providers and borrowers?

60-second success story: Salad Money + Yapily

How lenders can leverage open banking to close the SME finance gap

Why lenders need Open Banking