Underwriting with open banking
January 30, 2023
In the current macroeconomic context, it is becoming more arduous to lend and make the right affordability assessment. In one of our latest article How lenders can improve their credit decisioning, we touched upon the question on what lenders could do to navigate those complicated times. Today, we explore how open banking can help lenders drive a faster underwriting process while unlocking a fairer approach and a more up-to-date understanding of their borrowers.
Increase your competitiveness
In these troubled financial times, it’s not a secret for players in the lending industry that every details count when it comes to gain a new customer. New consumer apps have digitalised all possible services that existed, and equally changed consumers waiting expectations and servicing requirements. Therefore, open banking come as the final piece to allow financial services to offer a completely digitalised experience.
At Render we use open banking data to digitalise customers banking activity and identity checks. Based on this data our customers’ underwriters are able to access almost instantly dashboards presenting their applicants financial health, and browse them to give a final credit decisions in just a few minutes. Thus allowing a decision to be made much faster than if they had to manually review the data provided by the loan applicant.
On average the time to review one case has been divided by 6for an underwriter using Render. Streamlining efficiently internal processes and reducing drastically the cost structure of their business. And in the end, increasing your time to yes also makes you reduce your acquisition costs.
Expand customer base
Traditional credit scoring uses poor data. Based only on traditional Credit Rating Agencies (CRA) data, credit scoring limits access to credit to those who are able to repay. Many hidden prime (customers classified as sub primed but with a prime potential) or thin file (people new to a country using the credit bureaus) customer get ruled out, even if they manage their finances well.
Open Banking Credit Scoring makes credit more inclusive, while limiting the risk of over-indebtedness for borrowers and financial risk for lenders. Render articulate this data to provide the lender the right understanding of customers persona. Unlocking targeted pricing, better cross selling opportunities for financial institutions that have services that spreads along a variety of sector.
Open banking offers a valuable understanding. In our Abound use case we have been able to increase our Gini score by 12 percentage points. For those who aren’t familiar with that measure, the Gini is a measure of the overall performance of the credit score. In other words it indicates the ability of a credit score to separate the good from the bad payers. Ranging from0% to 100%, traditional scores are usually around 50%. Mixing credit bureau data alongside open banking, Render is able to achieve a score up to 80%.
Reduce regulatory and fraud risk
At Render we are convinced that open banking can bring more fairness to improve financial health for consumers. Lending is a prime example in that assessment. As it is now, it’s hard for lenders to manually assess their applicant’s income. They have to collect and review pay slips, identity documents, etc. A traditional loan origination process can take up days to be completed. Transactional data can change that statement and help lenders meet their regulatory requirements. Open banking data enable lenders to gain access to all their applicant’s expenses and other bank activity in a minute. Unravelling instant affordability calculations, accurate and confident income verification and finally more information on the borrower’s wealth situation. Making it easier for financial institutions to identify the most vulnerable customers and fulfil their consumer duty.