Exploring the impact of Open Banking on the lending industry

Dive into the transformative role of open banking in reshaping lending. Learn how Yapily’s cutting-edge infrastructure is pioneering changes in affordability, customer resilience, and financial support.

The lending sector seems more crucial to businesses and individuals than ever as we feel the pinch of the cost-of-living crisis. We’re navigating through a seismic shift, challenging both consumers and credit providers. Interestingly, while the number of consumer credit providers dwindles, consumer credit business surged by 13% in 2022 compared to 2021.

In these testing times, open banking emerges as a beacon of innovation, heralding a new era of financial empowerment and inclusivity. This technology equips lenders with a comprehensive, transparent financial view, ensuring compliance and robust support in a challenging environment.

Identifying Challenges in the Lending Industry

Today’s financial realm is riddled with complexities. The consumer quest for personalised services, coupled with stringent regulations for transparency and fairness, adds to the industry’s challenges. Post-COVID, a 15% increase in vulnerable individuals (totalling 27.7 million according to the FCA) has heightened lending support needs. Additionally, the burgeoning Buy Now Pay Later (BNPL) sector awaits tighter regulations, expected by 2025.

Mortgage repayments are another critical concern. The cost-of-living crisis and fluctuating interest rates have led to a significant uptick in mortgage arrears. The Bank of England’s Q2 2023 report highlighted a 13% jump in mortgage arrears, a record high since 2016.

In this same quarter, it was found that mortgages in arrears accounted for 0.93% of all homeowner mortgages outstanding and 0.44% of all buy-to-let mortgages outstanding. In Q3, 630 homeowner mortgaged properties and 450 buy-to-let mortgaged properties were taken into possession in the third quarter of 2023.

Key Focus Areas in Lending: Affordability and Financial Resilience

The lending sector’s spotlight shines on two pivotal areas:

Affordability: Are borrowers equipped to manage their loans? The decision-making process has evolved, prioritising a comprehensive analysis of borrowers’ financial health over simple credit scores.

Financial Resilience: Can customers handle economic shifts without defaulting? It’s about understanding the complexities of personal finance and ensuring that lending supports, rather than hinders, financial stability.

Additionally, there’s a growing emphasis on effective monitoring systems to uphold consumer duty and prevent foreseeable harm.

Open Banking: The Catalyst for Change

Open banking is reshaping lending with its ability to share financial information securely and efficiently. Account Information Services (AIS), a facet of open banking, is revolutionising KYC and affordability assessments. This service provides deep insights into spending patterns, offering a real-time view of financial health. Loans approved through open banking demonstrate significantly lower delinquency rates compared to traditional methods.

Yapily Data empowers lending companies with real-time financial insights, enhancing customer service confidence.

Predictive Analytics and Efficient Collections

Open banking data, a robust predictor, facilitates swift, informed conclusions about financial health. This predictive prowess enables financial institutions to anticipate and mitigate delinquencies proactively. The Financial Brand’s report highlights the lower delinquency rates of loans approved through open banking.

Moreover, Pay by Link, enabled by open banking, offers a proactive approach to collections. This tool allows lenders to send payment requests via email or SMS, ensuring efficient recovery while understanding the borrower’s situation.

Fostering Empathy in Debt Recovery

In times of financial hardship, open banking provides a real-time snapshot of a customer’s financial status, streamlining flexible payment arrangements. Coupled with VRP and Pay by Link, these tools allow for compassionate, flexible debt recovery plans.

Final Reflections

Open banking is a cornerstone of modern lending, fostering transparent, empathetic, and informed interactions. This approach enhances affordability assessments and financial resilience. By leveraging AIS, lenders gain deeper insights into borrowers’ finances, leading to more empathetic and accurate lending. Operational efficiencies like Pay by Link and VRP not only streamline collections but also protect consumer credit scores.

Yapily stands at the forefront of this revolution with its robust API, ensuring secure, efficient data sharing essential in today’s lending landscape. Our platform offers real-time financial insights, empowering lenders to make informed, empathetic decisions. Embracing Yapily means stepping into a future of tailored, transparent, transformative financial solutions, benefiting both lenders and their customers. Explore Yapily Data and discover how it can revolutionise your lending business.

Ready to elevate your lending business with the power of Open Banking? Don’t miss this opportunity to transform your operations, enhance security, and boost efficiency with Yapily’s cutting-edge solutions. Speak directly with one of our Open Banking experts today and discover how we can tailor our services to your unique needs. Together, we’ll unlock new possibilities and set your business on the path to success in the digital age. Schedule your consultation and step into the future of lending with Yapily.


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