It’s common knowledge that the financial services industry is among the fastest-growing industries. And the Covid-19 pandemic hasn’t affected its growth. Ever-growing digital solutions, shifting customer behavior, and new industry entrants have created a new financial landscape. Banks and financial institutions have also embraced open banking.
Open banking securely shares customers’ financial information with third-party financial service providers, such as lenders, through digital channels. It allows lending institutions to create a digitized, seamless, and swift lending process for borrowers.
According to Google, 67% of bank customers are willing to share more personal data if they can get additional benefits. Some of these benefits include a more personalized banking experience and reward points.
Lenders should start making smarter decisions with open banking. Here’s how to go about it.
Quicker Borrower Verification
For a long time, the borrower verification process has been very cumbersome for both customers and lenders. Borrowers need to provide many documents–such as utility bills and pay stubs–then physically take them to the lender.
The process creates additional tasks for lenders, slowing down the borrowing process. They have to collect, organize, then verify the documents, and this significantly increases operational costs.
Traditional credit scoring uses older and narrower financial data which commonly gives an inaccurate view of a client’s exact financial position. It increases the risk of fraud and may lead to debt defaults down the road.
Lenders should use open banking to access a wider range of customer data. When this data is validated and up-to-date, it provides a holistic applicant profile.
Enhanced Underwriting Processes
Lenders still use credit bureau data to make many of their credit decisions. A few now use alternative data sources such as Lexisnexis Riskview. However, those who deal directly with consumers can use the non-financial data available from open banking to assess a customer’s risk on a wider and more detailed level.
Conventional lending processes have become obsolete because they rely on physical interaction. They are unnecessarily expensive and time-consuming. As technology develops, customers want faster, easier and more accurate ways to find car title loans near me.
Digitizing lending with open banking provides a platform for lenders to increase customer interactions and offer more value. It improves customers’ experience by minimizing paperwork. The lender drives down costs, processes more loans and makes better, more efficient credit decisions.
Personalized Customer Experience
Retail banking has moved online. Currently, 80% of all customer touch points occur on digital channels. The financial industry is digitizing rapidly to operate in real-time and remain relevant in this era.
For most lending institutions, onboarding new customers is a long, time-consuming exercise. The process is further complicated by government regulations that fight money laundering, terrorism, and fraud. Open banking can make smart onboarding customers faster and cheaper.
When lenders are able to access their customers’ bank information, they complete both income and identity verifications faster, enhancing the process. Lenders can also tailor financial services according to clients’ unique circumstances. All these result in a personalized customer experience.
Open banking is no longer optional for lending institutions. It’s the only way to go because it saves time and money. It creates a digital experience that’s convenient, streamlined, and more valuable to borrowers.