Open banking: how the market can embrace its potential
Cloë Atkinson, managing director at Mortgage Engine
Among mortgage professionals, open banking has become a bit of a buzzword because of the potential benefits it could bring to our industry – faster, more secure mortgage applications being one example. In reality the benefits open banking could bring to the market have yet to truly materialise.
Could the start of a new decade mark the beginning of a new era for open banking in the sector? Possibly, but there are challenges to overcome before we reach that point.
Speed, accuracy and customer benefits
Open banking (underpinned by PSD2) is a set of protocols which force UK banks to allow their customers’ data to be shared across platform (with customer agreement).
This was a good first step and it has opened the door to digitalisation for various stages in the mortgage application process.
For example, we know that brokers and lenders currently rely on using customers’ bank statements as part of suitability assessments for a decision in principle (DIP).
This process can be frustrating and inefficient, but it could be accelerated through open banking. With a customer’s consent, a broker could use open banking to retrieve data on their income and transactions in a matter of seconds.
This data could be shared with lenders at similar speeds, and lenders could implement tech tools to review and assess a borrower’s financial situation autonomously.
And the benefits go beyond speed and time-saving here; open banking enables absolute accuracy in this process and is as secure for customers as mobile or online banking.
Further ahead, it’s likely we’ll see a variety of clever tools that allow customers to better understand their financial situations by reviewing their spending habits through open banking.
These same tools could also enable brokers to help customers make accurate predictions on their future financial circumstances – whether they’re on the road to being eligible for a mortgage, for example, and how to change their spending habits if not.
Bumps along the road (and how to navigate them)
Open banking has opened new doors for innovation in financial services. The immediate benefits for the mortgage industry – should we see widespread adoption of the technology – are clear.
However, we are simply not seeing a huge interest in open banking from consumers at the moment.
There are lots of great apps out there – these often focus on better money management and budgeting, such as Emma, Yodel or Yolt – but the vast majority of customers in the UK are not sharing their open banking credentials with a wide-enough variety of organisations.
For years the consumer has been told to be cautious with sharing data. This has undoubtedly contributed to a perceived lack of interest in open banking.
If the industry is to move forward, we need some robust use cases that illustrate the benefits of open banking, and also the fact it is safe and secure.
The responsibility lies with fintechs in the industry to work with big incumbents with large customer bases, such as Santander or NatWest (which have integrated with Mortgage Engine’s API platform), to get those use cases in a good place.
If open banking can be used to help more customers source DIPs and ultimately get on the housing ladder in a shorter space of time, it’s highly likely we’ll see more customers becoming comfortable with the concept and some of those future innovations.
Getting to that stage will require support from lenders and brokers. For a start, the industry needs to see more lenders accepting pre-population of application forms via open banking and application programming interfaces (APIs).
When we reach that point, brokers will be in the driving seat in terms of building consumer trust and confidence in open banking.