You’ve probably heard of open banking, but understanding it in precise detail can be challenging. Open banking provides banks and lenders with access to consumers’ data, as long as they consent. Regulated by the Financial Conduct Authority (FCA), the aims of open banking are to give consumers increased power over their investments and it also empowers lenders to provide for specific services, tailored to their needs. As a relatively new financial service, open banking has huge implications for debt recovery and debt collection processes.
Open Banking in More Detail
Open banking is a practice that authorises banks and financial service providers (budgeting apps and cash flow software, for example) to have secure access to consumers’ financial data. Regulated via the Payment Services Regulations of 2017, open banking empowers banks to share financial data, as long as permitted to do so by their consumers. This data can include account details, saving statements and other banking information.
On January 2018, the Competition and Markets Authority (CMA) forced the nine largest UK current account providers (Allied Irish Bank, Bank of Ireland, Barclays, Danske, HSBC, Lloyds Banking Group, Nationwide, RBS Group, Santander) to open up their data. This meant banking became “open”; consumers can now access all their financial data in one location in theory, via a website or an app.
The benefits of open banking are clear — it certainly encourages innovation and improves competition. And it empowers consumers to manage their money more effectively too. But interestingly, according to YouGov, 72% of UK adults have never even heard of open banking and according to PwC, only 18% are aware of what it actually means to them.
The Digitisation of Debt
Interestingly open banking has huge implications for the collections industry. Certainly the transparency of sharing consumers’ data enhances fraud detection, but it also dramatically improves the evaluation of potential credit risk. Today leading debt collection software and credit control software, powered by machine learning and artificial intelligence, can assess debtors’ past history and predict the likelihood that they will repay any future debt. And open banking can serve to ensure more reporting accuracy in this regard. Banks and other lenders can now get a more precise and holistic presentation of debtors’ full financial landscape and can respond to them more robustly. Lateral Technology’s AI-powered software can leverage historical transaction data with real-time analysis to assess the likelihood of the debtor reneging on their payment obligations.
Open banking can also inform debtor decision making. With a simple, clear presentation of their financial position in front of them on a dashboard, or via an app, debtors can also make informed, data-drive decisions themselves, and repayment schedules can be initiated for everyone’s benefit.
Digital tools continue to create a constructive disruption in the collections industry. AI and ML offer the foundation for building a whole new approach to successful collections. To learn more about how Lateral’s advanced debt collection tools can help you adapt and evolve, get in touch today.