Open banking could give the UK market a unique advantage
Given the market uncertainty of recent times, financial service professionals and consumers alike have looked to technology to offer greater reassurance.
Some believe that open banking has the potential to reshape the competitive landscape of the banking industry and enhance the customer experience.
Simply put, it is a financial services term within fintech and the technology potentially offers greater transparency options for account holders.
This enables access to consumer banking and financial accounts across third-party applications and control of them too – and while this offers opportunities, it also presents additional risk.
“Open banking leverages application programming interfaces (APIs) so financial information can be shared with qualifying, trusted third parties safely,” said Mike Underwood (pictured), head of origination at Adsum, a financial institution that specialises in technology that eradicates time and cost-consuming manual processes.
The potential of open banking particularly caught consumers’ attention during the pandemic, when lockdowns made the usual face to face interaction expected during a mortgage process impossible.
Read more: How has technology influenced the mortgage market over the last two years?
Underwood explained that open banking has, across the board, improved transparency, competition, and allowed consumers to manage their money better. He also believed it to be a unique advantage that the UK market offered.
“In the mortgage and property industry, open banking is making it easier to apply for mortgages, by allowing lenders to examine a prospect’s current account data, which reduces time spent on data entry and eliminates the risk of human error,” he added.
Underwood also pointed out that through the use of networked accounts, open banking could help lenders get a more accurate picture of a consumer's financial situation and risk level in order to offer them more profitable loan terms.
This, he said, was particularly useful given current conditions as the average consumer’s risk level was on the rise due to affordability issues, following rising interest rates.
While the market had begun to slow down, speed and efficiency were always important to the process and in improving customer outcomes, Underwood said. As with a lot of property technology, he believed there was scope for further innovation and the deeper integration of open banking APIs. He noted that the current system did not allow for a full income assessment, as it stood.
He detailed that an open banking app for consumers looking to purchase a property could automatically calculate what customers could afford by assessing all the information in their accounts, which may offer a more reliable picture than mortgage lending guidelines.
According to Underwood, open banking could also help smaller businesses save time through online accounting and detecting fraud. Plus, by improving the competition of the smaller and newer lenders, this could result in lower costs, better technology and an improvement to customer service and outcomes.
Read more: Mortgage industry’s tech transformation – what can make it last?
“In the commercial property industry, open banking is allowing real estate developers to tailor their offers more specifically,” said Underwood.
Developers could share information with third parties, provided this was not sensitive information, which gave them a better profile of the market and helped to create more personalised offers to attract buyers and sellers.
“Open banking also provides access and insight into tax credits and VAT refunds, which businesses or investors can then leverage to support further investment,” Underwood added.
He believed businesses were often unaware of the amount of VAT refunds to which they were entitled, particularly in the commercial property industry, due to the complex, opaque nature of a property’s VAT status. Furthermore, should money be owed by HMRC, it was often prone to delays. “To solve this issue, innovative fintechs allow clients to calculate the value of the tax credits they are owed and receive this money early, in a series of scheduled payments; improving cash flow and confidence,” he concluded.
