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HOW CAN LENDERS LEVERAGE OPEN BANKING DATA TO TACKLE COVID-19 PANDEMIC CHALLENGES

Traditional Banks

Will Hurst, Head of Commercial Development at Monevo, looks at how lenders are trying to leverage Open Banking data and other innovations to deal with the challenges they face in the wake of the COVID-19 pandemic and as government schemes come to an end.

 

We have seen extraordinary levels of Government-backed support made available to the public and businesses alike in responding to the health crisis by our banks through payment holidays, grants and the furlough scheme. While we keep collective fingers crossed that the economy bounces back quickly, the consequences of loan payment freezes, mortgage payment holidays and business interruption loans will no doubt last for years.

As recent Bank of England figures indicate, many customers have opted to take a payment holiday during lockdown. The challenge for lenders will be to predict who will come out of the freeze without difficulty, and who will remain in the cold.

Understanding customer behaviour during the crisis is an unenviable task. From identifying consumers who used a payment holiday due to real financial difficulty to consumers who used them as a tool for clever management of personal finances has been pretty much impossible for lenders. Hands up any homeowners who froze mortgage payments to repay credit card balances?

Add to this the challenge of working out which consumers have been furloughed and likely to return to work or conversely who is facing the possibility of redundancy, and you would think that lenders are attempting little more than a crystal ball gazing exercise. It’s just one of the many factors contributing to the contraction of personal lending volumes over the past few months. However, there is hope. And as usual, in our darkest hours, we can look to technology and data to help save the day.

 

Open Banking data to the rescue

Open Banking presents itself as a very real remedy to help understand a prospective borrower’s financial position and in a world of uncertainty, it shows better indicators of their current and future affordability. The ability to analyse a customer’s entire transaction history is not just a benefit for responsible lenders, it presents more visibility and accountability to the consumer and helps prevent consumers from taking on more debt than they can afford.

Income and affordability checks can be completed down to a penny based on real-time data, furloughed applicants can be identified, and payment holidays spotted. Open Banking data has the potential to give a here and now view for lenders that is different to credit bureau data at a time when it’s needed most, benefitting both lenders and consumers alike.

With no effective way other than antiquated manual labour to check for payment freezes or furloughed status, it’s not surprising that many lenders are working hard on integrating Open Banking data into their platforms and customer journeys to get this real-time view they so desperately need.

 

But will consumers consent?

This shift towards Open Banking means being able to analyse more relevant data from consumers prior to making a lending decision, but none of this can happen without the consent of the consumer who hold all the power in this relationship. If consumers don’t feel comfortable sharing their data then lenders won’t get their hands on the data they so desperately want.

Here at Monevo, as a platform that powers the personal loan comparison and marketplaces behind some of the world’s most well-known consumer-facing brands and fintechs, we’re very aware of the potential benefits of Open Banking. In fact, we are soon to release our own Open Banking journey and integration options at various touch points during the loan application process. While we are excited about the opportunity, in many ways the release represents a step into uncharted territory in terms of consent rates. How many consumers will opt in, or opt out, is an unknown at the moment, but undeniably there is a great opportunity to improve outcomes for all involved if they choose to share their data.

 

Understanding the data

Assuming lenders do get access to the data, it’s not a silver bullet. The depth of Open Banking categorisation data throws up new challenges for those in credit risk in these strange times. For example, grocery shopping is historically a constant spend (as opposed to discretionary), so lenders normally count 100% of groceries in assessing affordability. But under lockdown, consumer discretionary spending has moved around and, in some cases, to merchants that are classified under grocery shopping. Pounds normally spent at pubs and restaurants would previously not class as essential cost but have been spent online at Tesco or Amazon during lockdown.

The hospitality industry’s pain has been the supermarkets gain here, but it changes how affordability assessments need to be looked at. Another challenge is the treatment of those with gambling spend, which, for many, has gone up during lockdown. This is a veritable Pandora’s box in determining what spending levels constitute risk for lenders and consumers that are looking for credit. Normalising these changes in behaviour and interpreting them in the context of credit risk will not be straight forward.

 

Welcome to the future

Although a rethink of conventional rules will be required, what is certain is that the appetite to lend remains. In addition, as a sector we have never had more tools available to us to try and crack the enigma code of Covid-19. By utilising these tools effectively, we can return to better times with what we hope will be an even more robust personal credit ecosystem that serves and protects consumers well.

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AZZURRO ASSOCIATES FURTHER STRENGTHENS TEAM WITH SENIOR APPOINTMENT

Azzurro Associates, a pioneer in commercial debt solutions (CDS), has appointed experienced Fintech executive Stefan Acklam as Finance Director.

 

Stefan has more than 20 years’ expertise in Financial Services in the UK and US, having recently been Finance Director for a well-known Challenger Bank, supporting the business through its Prudential Regulation Authority (PRA) approvals and successful multi-million-pound fund raising. He has a proven track record in building strong finance teams, and in putting in place the necessary financial systems and processes demanded of a highly regulated industry.

 

A former senior consultant with KPMG, Stefan was attracted to the new role by the team and the opportunity: “Azzurro Associates is a well-funded business that is clearly at a very exciting stage of its development,” he says.

 

“It not only has a credible executive team with a healthy appetite to grow, but also a genuinely exciting market opportunity with a range of debt management solutions that will be of significant help to many businesses and CFOs as the UK heads towards recovery.”

 

Andrew Birkwood, Founder and CEO of Azzurro Associates, is similarly pleased to welcome Stefan to the team: “Stefan’s experience of Financial Services, and his proven track record with a Fintech and Challenger Bank specifically, will be of particular benefit as we look to grow the business and promote a new generation of debt management solutions to an increasingly demanding market.”

 

An Associate of the Chartered Institute of Management Accountants (ACMA), Stefan began his career with Bass Leisure before moving to Capital One Bank where he had a spell in the US. As well as Banking, he also has experience of insurance and pensions with Capita PLC and Liverpool Victoria. He holds a BA (Hons) in Industrial Economics.

 

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YOUNGER GENERATIONS DRIVE UK ALTERNATIVE PAYMENT METHOD ADOPTION FOR ONLINE TRANSACTIONS

  • 42% of Millennials and 35% of Generation Z feel confident using alternative payment methods, or have used them previously
  • 81% of consumers agree security of their data and money is the most important aspect when choosing a payment method

As the migration away from traditional payment methods in the UK accelerates, younger generations are leading the adoption of alternative payment methods (APMs) such as bank transfers and e-wallets, reveals a new study from PPRO. According to the findings, 42% of Millennials (born between 1980-1993) and 35% of Generation Z (born between 1994-2001) feel confident using, or have used, these methods of payment before.

In the UK, any payment method other than credit or debit cards is viewed as an alternative payment method (APM). However, across the globe, these forms of payment are considered local payment methods (LPMs) due to their broad adoption. In fact, there are over 450 significant local payment methods currently available worldwide, which account for more than 70% of global e-commerce transactions.

Ongoing COVID-19 restrictions have seen a surge in e-commerce in recent months, with many consumers forced to shop online for everyday goods. As a result, UK consumers have been more inclined to try a range of digital payment methods to enable a convenient transaction experience. Currently, 89% of UK consumers are confident using PayPal, whilst a further 31% express the same confidence in using mobile wallets such as Apple Pay or Google Pay. This form of payment is particularly high for younger generations, with 68% of Generation Z stating they use mobile wallet technology.

For younger generations, seeing a buzz about new payment methods in the news and on social media has been a key driving force for local payment adoption, 31% of Generation Z consider this the biggest motivation to try new payment methods. For Millennials, 37% said that merchant acceptance is their main driver.

For the overall UK population, however, security was ranked the top adoption driver, even above reputable brand image, with over half (59%) of UK consumers stating security is the most important influence on their usage of new payment methods. This highlights the growing need for online merchants, Payment Service Providers and FinTechs to address consumer perceptions around trust and assure the security of payment methods at checkout.

“Local payment methods, such as direct bank transfers and pay later schemes, are considered new ways to pay in the UK. However, for online merchants that sell to consumers across borders, these local methods are the norm and must be offered at the check out to reach international consumers,” comments James Booth, VP Head of Partnerships, EMEA at PPRO.

“Traditionally, the UK and US alike have stuck to using credit and debit card payments for online transactions. However, for merchants, local payment methods (LPMs) are much more secure in comparison to card payments, due to chargebacks and being prone to digital theft and fraud. LPMs, such as bank transfers, are more secure and a lot cheaper for merchants to process,” adds Booth.

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