70% of lenders expected to use open banking within two years

Research from Credit Kudos has found that a quarter of UK lenders now use Open Banking technology, with half of those that don't plan to do so in the future.

Nearly nine in ten of 102 lenders surveyed say they plan to adopt it within the next two years, meaning that by 2023, seven in ten lenders overall are expected to be using Open Banking.

"Open Banking technology is helping lenders to move beyond the limitations of traditional credit data and open the door to better financial behavioural data, all of which creates more rounded assessments, increased acceptances and reduced defaults,” says Freddy Kelly, CEO of Credit Kudos.

The real impact of COVID-19 on lending 

Credit Kudos says the report demonstrates the impact of the COVID-19 pandemic on lenders’ appetite to invest in technology that gives them a comprehensive view of a borrower’s financial situation to enable better lending decisions - including affordability and creditworthiness.

The report shows that around eight in ten (78%) lenders changed their rules about who they could lend to in the pandemic. Almost half (46%) of these lenders changed their policies because it was too difficult to verify borrowers’ income, for reasons including furlough and redundancies.

With 11.7 million people furloughed at some point during the pandemic, and unemployment at 5.2% in Q4 2020, more than a third (36%) of lenders changed their lending rules in order to avoid those deemed ‘higher risk’ customers during a period of huge uncertainty. This meant that lenders were missing out on new business, with 30% of those who changed lending policies during COVID-19 experiencing a loss of revenue from new customers.

Lenders noted the benefits of Open Banking 

It has highlighted by the survey that lenders are well aware of the benefits that Open Banking can bring to their organisation, with 47% saying it can make credit decisions cheaper and more efficient and 43% agreeing that it can boost the accuracy of credit decisions. 

The survey also highlighted that lenders are already capitalising on the benefits that Open Banking offers, with a third (32%) already using Open Banking enabled technology - such as Signal, the Open Banking credit score, - to assess affordability and better predict credit risk. The next step will be to harness Open Banking technology to drive customer retention and develop financial education tools to support Britain’s borrowers. 

Kelly added: “The seismic shock of the pandemic has forced a period of refocusing among lenders on the need for better sources of data, and greater technology integration to help them leverage newer data to enable better decisioning. Open Banking technology is helping lenders to move beyond the limitations of traditional credit data and open the door to better financial behavioural data, all of which creates more rounded assessments, increased acceptances and reduced defaults.”