Top 3 Benefits of Open Banking for Lenders

Avato October 17, 2022
open banking for lenders

Many are predicting that the lending industry will be one of the first to adopt – and see the benefits of – open banking when it rolls out in Canada as early as 2023. It’s widely agreed that open banking has the potential to revolutionize financial services, drive innovation, and empower consumers. With potential use cases for open banking limited only by the imagination, why is lending poised to lead the way? Let’s look at some of the drivers for rapid adoption of open banking for lenders. 

Simplified lending approvals 

As anyone who has ever applied for a loan can attest, the required paperwork can be significant and time-consuming to complete. Open banking will allow lenders to digitize the loan application and approval process in its entirety, eliminating cumbersome forms and duplication of effort. 

Using open banking, lenders will be able to quickly access consumer data from a variety of sources to assess credit-worthiness. Lending decisions can be made in a matter of minutes or hours, rather than days. Lenders gain customers with ease, and consumers have faster access to the funds they need – win-win. 

Access to alternative data

Traditional lending practices don’t always give a complete or accurate financial picture of the applicant. Open banking will allow lenders to consider “alternative data” in making loan decisions. According to the Canadian Lenders Association, alternative data includes financial information that’s not usually collected by credit reporting agencies. Examples of alternative data include utility payment history, payroll data and POS transactions. 

By gathering a more complete financial history from applicants and including alternative data, lenders can offer valuable credit opportunities for underserved consumers, such as those with little or no credit history. Combined with open banking, alternative data may also spark innovative loan products that are customized to consumer needs and circumstances. 

More lending options 

What if consumers and businesses could access a variety of loan options with the click of a button? Using open banking, shopping around for a loan could be as easy as using a dating app. With the ability to share more than just a credit score, borrowers can be automatically matched with lenders and products that are ideally suited for their situation and preferences. Lenders will have the ability to create innovative, customized product offerings that could help with attracting and keeping customers. 

Open banking promises many benefits to both the financial industry and consumers. It will allow for many new and enhanced products and services, with greater control and protection of sensitive financial and personal data. The use case for lenders is particularly exciting, as open banking could revolutionize the way they attract, approve, and serve borrowers. As we move rapidly towards the rollout of an open banking framework in Canada, keep an eye on lending to be one of the early success stories. 

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