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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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VIBEPAY SETS SIGHTS ON GROWTH WITH INTEGRATION OF MORE UK BANKS AND NEW BUSINESS ACCOUNTS

VibePay is continuing on its ambitious path of growth, with the integration of more UK banks and payment providers via open banking, and a business account function in its newly launched social payments app.

With 24 banks now integrated with the app, including new additions Starling, Capital One and Tesco, VibePay is aiming to boost engagement with its 50,000 users and drive more sign-ups amongst its Gen Z audience.

The addition of business accounts for the first time will open up VibePay to a small business audience and appeal to the many Gen Z-ers who earn money from selling on their social channels or platforms like Depop. This functionality will enable them to make and receive payments with no fees and provide instant access to funds and a transaction dashboard to track their payments.

 

The new app will see further functionality added over the next few weeks including:

  • Vibe.me links, giving all users a personalised payment URL
  • Vibe ID – an ‘online passport’ allowing users to link their bank account and seamlessly transact and interact with brands across the web
  • QR codes, to scan for instant payments
  • Vibe Shop – a new way to buy Vibe merchandise via pay with bank functionality
  • Integration with VibeTickets, allowing its 100,000 users to make payments via VibePay with no fees

 

Luke Massie, founder of VibePay, says“This new app is the culmination of months of work – we’ve taken invaluable feedback from the VibePay community and looked at how we can make the app bigger and better so it’s easier, more fun and an indispensable tool for our users’ lives.

 We’re built for Gen Z by Gen Z which means we’re able to reach this critical audience with a unique solution built on their lives. We can’t wait to roll out the new functionality over the coming weeks and see our community continue to grow. We’ve already got our sights set on the next phase of growth for 2020 and beyond.”

 

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BOARD REPORT HIGHLIGHTS COMPLEX DECISION-MAKING PROCESS ACROSS BANKING AND FINANCE SECTOR

‘The State Of Decision-Making’ report from Board, reveals business decisions made in silos without modern planning tools

A third (33%) of Banking & Finance decision-makers believe decisions made in silos, despite majority (63%) of decisions being implemented worldwide

More than half (57%) of Banking & Finance decision-makers rely on spreadsheets for decision-making despite modern planning tools now available

 

Board, the #1 decision-making platform, has today released ‘The State Of Decision-Making’ report focussing on how UK organisations make their important business decisions.

Based on a survey of 500 senior decision-makers, across industries including, Banking & Financial Services, Consumer Goods, Manufacturing, Pharmaceutical, Professional Services, Retail, and Transport & Logistics,  ‘The State Of Decision-Making’ report from Board shows that today’s business decision-making process is increasingly complex, with multiple departments and seniority levels all responsible for some form of decision-making, leading to a lack of cohesion between units and a waste of business resources.

 

The State Of Decision-Making’ research found that while a clear majority of respondents (63%) working within the banking and finance sector say the important decisions they are responsible for get implemented globally, the decision-making process itself is not joined-up across the business, with one third (33%) also saying that crucial business decisions are made in departmental silos.

 

The research, conducted on behalf of Board International by independent research organisation 3GEM, also asked respondents the tools they use to make decisions and, while almost every action within an organisation today will lead to the creation of new data, it seems many businesses are not using the crucial insights which data can provide to make important decisions.

 

More than half (55%) of respondents in the banking and finance industry said they were making business decisions based on data and insights, but ‘gut feeling’ decisions are still made by up to 44% of companies. What’s more over half (57%) of the sector’s companies still rely on spreadsheets to aid their decision-making, despite more modern and reliable tools now available.

 

“In today’s fast-paced, data rich and evolving business environment, making quick and effective decisions is critical to both compete and survive,” explains Gavin Fallon, Managing Director for UK, Nordics & South Africa at Board International. “Important decisions are being made at any one time across multiple business functions, but all too often, important decision-making is disconnected, modular or fragmented.”

 

The research also asked respondents about the challenges banking and finance decision-makers face at their organisation,  with nearly a third (29%) citing a lack of available data and insights and one quarter (25%) citing the fact there are too many people in the decision-making process as their biggest frustrations. However, industry decision-makers believe that the process can be improved with the introduction of new technology, with the majority (57%) of respondents saying this would make their decision-making better, while 41% also felt increased use of data and insights would help.

 

“Businesses have to plan every day for a far more uncertain future and set themselves up to prepare for change and keep changing against the backdrop of a more volatile and uncertain marketplace than ever,” continues Fallon. “A bad decision can have wide-ranging impact across the whole organisation and no business can afford to waste time and resources on bets that may or may not come off.  As the business environment increases in complexity, the ability to not just react, but predict, in real-time, becomes more important than ever.”

 

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