Greater Expectations: What’s Next for Open Banking?

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.

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.

• 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.