Greater Expectations: What’s Next for Open Banking?

A young man holding a smartphone and looking optimistic

Globally, the UK has led the way with Open Banking. We’re at a juncture where we can lead and inspire again.

Whilst the debate continues around how the original vision of Open Banking compares with its reality, there’s no doubt that it has shaken up the UK financial service sector. It’s driven innovation in banking and FinTech, and encouraged transactions that are unmistakeably customer centric.

Half a decade in, the solution is a recognisable feature of the lending customer journey and is accelerating along the maturity curve. Thinking strategically, the socioeconomic headwinds we’re experiencing provides Open Banking with a chance to become further embedded into consumer expectations and provide lenders with a vision for a modern and purposeful digital banking experience.

TransUnion was an early supporter of Open Banking, viewing the technology as a means to improve customer acquisition and customer experience (CX), and enable more informed and fairer lending decisions. The last goal resonates powerfully with consumers considering applying for financial products to better manage household budgets being squeezed by the cost of living crisis. With its ability to provide accurate information on the financial situation of existing and potential customers — including insights into their financial resilience, creditworthiness and ability to afford repayments — Open Banking helps lenders to reach the underserved without compromising risk appetites. Ultimately helping to improve financial inclusion in the UK.

Indicators for responsible growth

There are numerous high-level, actionable indicators for Open Banking to better serve consumers.

For example, consumers are telling us they’re still experiencing friction and looking for real-time decisions on applications. TransUnion research indicated that when considering applying for credit or refinancing existing credit, 15% of consumers ultimately decided not to because they felt it was too much work, and 1 in 10 gave up as they could not verify their identity. Over 50% expected a real time decision for a digital loan.

Drilling into the research, there’s a clear demographic bias towards younger people getting frustrated with the CX offered. One in five Millennials quit an application due to the number of questions asked and 70% of Gen Z thought getting a real-time decision on an application was important.

As younger people with a limited credit footprint move into the workforce and flex their spending power, it’s important that lenders aspire to meet their needs and expectations. Open Banking is one of the pieces that can help solve the puzzle. For journeys that involve price comparison websites — go-to platforms for digital natives — Open Banking can enhance decisioning to give customers greater choice, potentially better-priced products, and greater confidence that they’ll be accepted for the product. For customers who arrive organically on a lender platform, Open Banking offers income verification, and affordability and credit risk assessments, identifying vulnerable customers and optimization of the application process.

Three emerging use cases for Open Banking

  • Open Banking use case 1: Across all consumer segments, Open Banking offers strategic value for lenders adapting to the FCA’s Consumer Duty regulatory update. It can strengthen affordability assessments at the acquisition stage and enable better-informed decisions. It can also improve engagement with existing customers by identifying those whose affordability resilience is changing — so lenders can apply the right customer care strategies. Open Banking can help lenders spot consumers showing early signs of financial difficulties, allowing them to proactively engage and support them in getting back on track.

  • Open Banking use case 2: Financial inclusion is another key use case for Open Banking. Financial exclusion remains a significant challenge for some UK consumers and the Government’s Financial Inclusion Report 2021-2022 notes the role FinTechs and Open Banking can play in unlocking “benefits for excluded consumers; for example, through new payments options and by helping individuals manage their budgets and better understand their finances.”

    Open Banking can provide accurate information on a customer’s financial situation — including insights into their financial resilience, creditworthiness and ability to afford repayments — and can help lenders to both reach the underserved and better manage existing relationships without compromising risk appetites. Ultimately, we should view Open Banking as a vehicle to improve financial inclusion within the UK.

  • Open Banking use case 3: Other significant challenges organisations face are fraud and digital crime. The scale of fraud in the UK is such that it should be “considered a national security threat”, and can damage commercial performance, brand reputation and consumer trust. TransUnion’s 2023 State of Omnichannel Fraud Report, which uses our vast intelligence network, revealed 4.6% of all global digital transactions in 2022 were potentially fraudulent.

    Over half of UK consumers were worried about identity theft, while 45% cited concern about stolen credit card information. For lenders, the security advantages Open Banking offers should not be overlooked: 49% of consumers surveyed ranked security of personal data as the number one quality or expectation when deciding what online company to do business with. Lenders should view Open Banking as a tool that can strengthen fraud strategies and address consumer concerns.

How we’ll help shape the future of Open Banking

In the UK, there are 7 million active users of Open Banking. Strategically, we’re at a pivotal moment where consumer use is growing, opportunities for lenders are highly attractive and the ecosystem is primed to evolve following the recent recommendations published by the JROC. Globally, the UK has led the way with open banking and as other countries catch up, we’re at a juncture where we can lead and inspire again. To do this effectively we’ve recently invested in data intelligence specialist Bud Financial Ltd (Bud).

“TransUnion is committed to increasing financial inclusion by continuing to expand the information available to create an accurate and reliable picture of each consumer,” states Celso Nogueira, TransUnion UK director of Open Banking.

"Our strategic investment in Bud marks the start of an exciting new partnership, combining our global infrastructure and insights expertise with Bud’s end-to-end Open Banking platform. Bud was recognised as a ‘Leader’ in the Forrester Wave™ Open Banking Intermediaries, Q1 2023 report, underscoring the high regard their technology is held in within the industry. Our partnership will help deliver an Open Banking platform that makes it simpler than ever to onboard consumers in the digital age.”

As those working in the industry know, Bud has led the way in making financial decisions simple. “At Bud, we’ve proven that use of transactional data via open banking enables lenders to gain deeper insights into their customers' financial behaviour, meaning they can make more informed lending decisions and offer tailored products and services,” explains George Dunning, Bud COO and co-founder.

TransUnion’s ambition is to improve financial inclusion in the UK. From employing AI to improve models to using dashboards to engage customers in arrears to a powerful suite of data intelligence services consumed directly via an Open Banking API or via web dashboard. The next phase of Open Banking and open finance will deliver a customer experience that’s meaningful.

Talk to us to find out how TransUnion's insights and data solutions can help support your business and help deliver positive outcomes for you and your customers.

If you’re a consumer with questions or issues related to your personal credit report, drivers history report, disputes, fraud, identity theft, credit report freeze or credit monitoring services, please visit our Customer Enquiries page for assistance.

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