The lenders’ guide to getting started with open banking
In the current macroeconomic environment, the need for lenders to accurately assess applicants’ creditworthiness is more vital than ever. Here's how open banking can help optimise the underwriting process – while creating a more inclusive, streamlined experience for customers.
Optimising your loan origination process as a lender improves both accountability and your applicants’ user experience.
Use open banking tools to speed up verification and reduce friction for loan applicants.
Take open banking further with risk decisioning, which leverages consumer data to make accurate predictions, streamline loan origination and better serve your users.
Implementing new solutions and technologies into your existing lending process may seem daunting. There are, however, a few key steps to help you navigate as you make adjustments.
Do the diagnostics
Start by evaluating your existing business models around consumer lending to assess what you need to do to adapt and prepare for the current economic climate. In these uncertain times – with rising interest rates, energy prices, and inflation – anticipating financial distress and avoiding applicants with overindebtedness is increasingly vital.
Verifying the income and expenditures of an applicant is one of the most common stages to face friction. By introducing open banking, lenders can offer a smooth application process. To give an example, tools like Income Check and Expense Check make tedious document uploads a thing of the past.
The other pain point for lenders is the evaluation of the risky patterns of the applicants. External credit bureaus are common sources, but it's often incomplete as it is not up to date and limited to loan engagement of the applicant. By introducing open banking into the loan origination process, such as Tink’s Risk Insights, a lender can protect their bottom line without compromising their ability to support vulnerable yet creditworthy consumers.
Embrace the power of data
A virtual gold mine, data is the consumer information you need to get closer to your customers and keep them coming back. But leveraging data effectively to boost your business requires smart systems. Here’s where PSD2 enables access to millions of applicants’ transactional data – billions of transactions, with data ripe for the picking. But without the right tools and infrastructure to put it to use, this data becomes a burden rather than an enabler.
Having fine-tuned our machine-learning models for 10 years, Tink processes more than one billion transactions a month. By categorising and harmonising raw transaction data, we help lenders verify an applicant’s income and expenses quickly and safely in a fully digital flow. All by simply tapping into their bank account data – and with our machine learning, lenders gain insights to build and improve their risk modelling.
Go for speed – and accuracy
It’s one thing to build a risk-decisioning model making accurate predictions, but to provide the best possible user experience the model also needs to be fast, with real-time access to applicants’ transaction data.
After all, when you’re in a financial bind and need a quick and simple loan, waiting for a response can be stressful. With real-time data, you can optimise the user experience and avoid applicants having to wait for a response. That’s why Tink worked to implement real-time transaction categorisation into our product from day one.
Start small and build from there
There’s no need to replace your entire system in one go. Take it one step at a time. Instead of replacing your existing infrastructure overnight, you can enhance what you already have by complementing your existing creditworthiness assessment model with new data sources.
Open banking can help accelerate or augment the assessment of relevant factors in the model. Depending on the type of credit that is being issued (for example overdraft, credit card or payday loan) you can use real-time account data to gain insights into anything from identity to net income and risk.
Build products that last – with the right partner
Building a model is a long-term strategic investment. The industry is moving at speed, and keeping up with the pace of change requires focus and dedicated resources. With Tink, you don’t have to do any of the heavy lifting. Our open banking platform connects you to over 3400 banks and institutions across Europe to get enriched and categorised financial data – through one single API. We focus on connectivity, so you can focus on innovation and smart financial services.
Want to discover how to truly understand a customer’s risk exposure at the time of application? Check out Tink’s risk-decisioning solutions.
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