Is open banking putting non-regulated lenders at a disadvantage?


open banking empty wallet

There’s no easy way to say this. Yes. Yes. A thousand times, yes. Being unable to provide open banking services means lenders fall short of customers’ digital expectations, the data needed to make deeply-informed underwriting decisions and the tools required to keep staff satisfied. Ouch. Ouch. Ouch.

I hate to be the one to break it to you, but if you’re one of the 60% of unregulated bridging lenders, you may want to consider getting FCA-approved, pronto. Because only companies that are authorised by the FCA can connect to open banking APIs (Application Programming Interfaces) to see a borrower’s full financial footprint.

Here are three major obstacles unregulated lenders will need to contend with, without open banking.

Customers are seriously unimpressed with pre-Netflix service

Amazon and Netflix turned us into monsters. Like a spoilt child screaming in a toy shop, we expect to have what we want, when we want it. And it needs to be hyper-convenient too! An overwhelming 72% of financial service customers believe onboarding should be entirely digital, according to 2020 research by Signicat. Something that can be done from your sofa. Post-COVID, that figure is likely even higher.

The need for instant digital gratification has a huge impact on firms. A whopping 68% of the customers who apply for financial services online quit halfway through. Have you ever seen a half-full trolley abandoned in a supermarket? Imagine if they made up more than half of all shoppers!

The reasons behind these ill-fated applications are not good news for unregulated lenders. 21% ditched their application because the process took too long. While another 21% said that the amount of information required was off-putting.

To be clear… Borrowers today are no longer happy to dig up some old paper statements, buy an envelope and trundle off to a post office. Oh, no siree. They want an instant one-click-does-all solution. Or in other words, open banking. And, if you can’t provide it, they will abandon you as ruthlessly as a runaway shopper in a supermarket.

On the other hand, firms that adopt open banking can storm ahead with instant applications and the fullest datasets. A hefty 57% of lenders already recognise that open banking improves customer experience.

Unregulated lenders miss out on valuable financial information  

With just one little tick on the “I consent to data-sharing” box, lenders can access every bank account, credit card, investment portfolio, insurance, pension and more. All in real-time. All presented a tidy dashboard. That’s the power of open banking. Click, click, BAM.

47% of lenders agree that open banking leads to better insights. But frankly, that figure should be a lot higher because access to all this financial data (international as well as national) can only lead to better insights. How could it not?

Unregulated lenders may need to stick with scanned PDFs and traditional credit checks. These checks – as we all know – offer a very limited window into someone’s creditworthiness. 54% of young Brits today think credit scores are fundamentally flawed. And, given that one in five people discover mistakes in their report… they might be right!

Creating relevant products needs real-time insights. With open banking, underwriters can unlock the past 90 days of client transactions, as well as their current salary and spending. Dashboards flag up anomalies too, meaning that instead of letting disaster strike, lenders can be proactive.

Employees don’t want ancient tech

Do you remember being the only kid at school with cringe shoes? Or pens that ran out before term even started? Please don’t do that to your employees. To thrive and keep up with the competition, they need up-to-date tools.

What’s more, employees are demanding career progression like never before. And when they don’t get to learn new skills and stay relevant in the industry, they are NOT happy. According to 2021 research by McKinsey, it’s the number one reason why employees are walking away from their jobs.

On the other hand, professionals who are content with workplace technology, report high satisfaction overall. One study by Salesforce found these employees felt more engaged, less stressed and happier! Win-win-win! And this, in turn, has been found to boost productivity so much that revenue can almost double (growth becomes 1.8 times faster according to another survey by Salesforce).

Open banking is absolutely putting unregulated lenders at a disadvantage

Things have a way of spiralling. When you have better products, you have satisfied customers, employees feel proud and the whole business circles upwards. Like a magical swirl winding up a mountain.

But when you have painfully slow products, you get grumpy borrowers who complain to employees. Employees can’t really speed things up because they don’t have the tools, so they get frustrated and then want to leave… You get the picture. This is the start of a seriously vicious cycle, that can just keep eating itself until there’s nothing left.

For bridging lenders that are unregulated, there may be some benefits. But there are also serious disadvantages, and this is one of them. Open banking is predicted to erupt over the coming years. Customers haven’t just got more of an appetite, they’re hungry for it. The number of people making open banking transactions is growing by 10% every month in the UK alone. And according to the latest report, 128 financial firms are already offering live-to-market products and services, enabled by open banking.

Your clients may be happy to print, sign, photocopy, convert documents, email, and post for now. But change is in the air. If you were looking for a sign to start the journey to become regulated… Open banking is probably it!