Open Banking has already led to many new opportunities and benefits for the lending industry. With the potential move from Open Banking to Open Finance, it is essential to keep an eye out for further possibilities.
Here’s what you need to know about the move from Open Banking to Open Finance and the potential benefits it will bring to loan providers.
What's the difference between Open Banking and Open Finance?
Open Banking allows third parties to access financial data from banks and other financial institutions. This data is usually based on customer’s transactions and enables consumer income and expense verification.
Open Finance will make it possible for third parties to collect essential data on investments, pensions, insurances and savings, widening the possibilities of data sharing beyond traditional banking. This allows lenders to get a more comprehensive overview of the financial situation of a loan applicant, than what is possible through open banking alone.
The move from Open Banking to Open Finance
The broadened data accessibility that Open Finance will provide, will make it possible for lenders to get a more accurate and nuanced insight into their customers' financial position. With this increased accuracy, providers will be able to make a more informed decision on loan applicants, decreasing the risk of fraud or defaults. This will also make the process of loan approval quicker, resulting in customer satisfaction and a better conversion rate.
In May 2022 the EU commission presented an initiative of Open Finance and is currently working on its implementation. This will make it possible for third parties to access and reuse customer data, with their consent, across financial services. This will enable data sharing beyond the limited data that third parties currently rely on.
The adoption of Open Finance will create further opportunities for the lending industry, as it will add value for service providers and their customers.
The benefits Open Finance will bring to the lending industry
1) Improved risk assessment
Open Finance will enable lenders to assess creditworthiness more accurately by providing access to a wider range of data sources. These data sources include investments, loan providers, utility bills and rent payments. By using this data, lenders get a better understanding of their customers’ financial position, making it possible to make more informed decisions and improve risk assessment.
2) Increased efficiency
The widened access that Open Finance will provide will help streamline loan providers internal processes by automating the full collection and analysis of a customer's financial data. The automation will also reduce manual errors and administrative costs, thereby speeding up the application process. This increase of efficiency will not only benefit the company internally, but also result in a quicker application process, improving customer experience.
3) Enhanced customer experience
Increased efficiency will better the experience for the applicant and increase customer satisfaction. This ultimately means that the customer is less likely to drop out of the loan application process, increasing the ROI of lenders acquisition investments.
The Nordic market is just waiting for Open Finance
The Nordic countries were early adopters of Open Banking. This is shown in the countries’ adoption of payment platforms such as Swish in 2012, MobilePay in 2013 and Vipps in2015. Today as many as 80% of the Swedish population using Swish. Furthermore, consumer trust in governmental processes and sharing financial data is essential for Open Finance to succeed and again, the Nordics have shown confidence here. This early adaptation and high levels of consumer trust, position the Nordics perfectly for adopting Open Finance quickly and seamlessly.
For loan providers in the Nordics, the time is now to prepare for Open Finance.
How Monthio is already on the path of Open Finance
Monthio is a creditworthiness assessment solution for banks and other financial institutions that makes the process of applying for a loan quicker and easier for both the borrower and lender. However, we go beyond Open Banking and enrich data with a wide range of financial data as well PSD2 data, giving unparalleled accuracy for credit decisioning.
Your receive a 360 financial overview in real-time, including income and expenses verification and extensive insight into risks and warnings. This optimized your operational functionality by decreasing the effort needed to finish an application significantly.
Monthio is already on the path of Open Finance by leveraging emerging technologies and open APIs . That means we are ready when you are.
