The long-term financial impact is beginning to materialize, as we move away from the pandemic. Borrowing provides a helpful financial buffer, but some can’t afford to borrow and yet cannot access mainstream credit. Even if an individual has the means to pay off a loan in time, some people are unfairly forced to accept high-cost, short-term alternatives such as payday lenders.
Traditional lenders currently rely on historic and often outdated borrowing data. They cannot always reliably determine whether a borrower is eligible for a loan in real time. It’s easy for consumers to feel powerless when faced with countless rejections for a loan. Open banking is one innovation that can provide lenders with a more accurate picture of a prospective borrower’s finances and empower them to lend responsibly to more people.
Open banking connects with their bank and allows lenders to access their transactional data. This helps them to better assess whether someone can afford to repay a loan. In an emerging concept known as open finance, a wider range of financial data, from mortgages to pensions, is securely shared with trusted third parties. Borrowers, are to be savvy and avoid the trappings of high-cost lenders. Lenders equipped with a more detailed understanding of a person’s ability to afford a loan and improves the odds of credit acceptance.
Customers need to trust that their data will be safe, by believing on the power of the technologies. In some places there is regulation to protect people’s information. This regulation requires additional security requirements to protect their data. A person can withdraw their consent whenever they wish to do so. At Creditspring, they also use open banking to prove someone’s identity. As more people in the UK turn to borrowing post-pandemic, many will likely be forced to resort to high-cost credit. Now the consumers now have choice, and more options to help prove their creditworthiness.