The UK’s Open Banking ecosystem is growing quickly: the number of Open Banking service users doubled during the first eight months of 2020 to reach two million.
It is now growing at a rate of roughly one million new users every six months, according to the Open Banking Implementation Entity (OBIE).
The primary source of growth so far has been Account Information Services (AIS), offered by third party service providers (TPPs): services that access customers’ bank accounts and data (with their consent) to offer financial management, loan application and other information-based services.
There are good reasons to suggest that the UK mortgage sector could benefit hugely from the efficiency improvements and growth potential that open banking AIS can offer.
These technologies are perfectly suited to addressing some of the biggest problems afflicting the industry, including the current backlog of mortgage applications swelled by the extension to the Help to Buy scheme, and by the Stamp Duty holiday.
Fast, accurate data transfer and analysis to inform lender decisions
Open banking AIS could have a profound impact in the mortgage sector because use of these services would accelerate application and onboarding processes dramatically, and would give lenders the ability to gather and analyse large volumes of accurate, valuable customer data to inform business decisions.
These services would enable the instant, real-time and secure transfer of bank account holders’ transaction data to regulated lenders, including in some cases income and expenses data linked to bank accounts held in other countries.
This will allow lenders to verify customers’ identities much more quickly than is possible using many current processes, and to make faster and better-informed credit and affordability decisions. Swift and secure access to verifiably accurate data would also reduce fraud risks significantly.
As well as providing accurate information to inform credit decisions, analysis of the data these services will gather can also be used by lenders to help guide other operational and strategic decisions, such as more tailored and targeted product offerings and peripheral sales opportunities.
Meanwhile, consumers and business customers will also benefit from more straightforward, less time-consuming application and onboarding processes.
An improved customer experience can then act as a strong foundation for longer term, mutually beneficial customer/lender relationships.
Improving awareness and understanding of open banking
But open banking services will only become mainstream propositions within the mortgage sector if everyone works proactively together, regulators with TPPs and both with lenders, to improve understanding of the benefits of open banking services and to counter misconceptions related to their security, among both lenders and consumers.
Recent research by Yolt Technology Services (YTS) revealed widespread uncertainty within the UK financial sector about data security and data sharing within the open banking model.
When we asked several hundred UK financial sector business leaders what poses the biggest risk to mass adoption of open banking, more than half cited a lack of knowledge of, or an unwillingness to accept, data security risks on the part of consumers or business customers.
Clearly, more work is required to educate lenders and consumers about the data security controls that are built into the open banking system.
Regulators can lead the way to help the industry to show customers that open banking gives the customer control over how their data is accessed and used.
In particular, customers need to understand that they will never be unknowingly required to share online or mobile banking credentials with any open banking TPP; and that TPP access to account data is always conditional upon informed customer consent.
Customers – and lenders – should also be reassured by the fact that use of Strong Customer Authentication is mandated when accessing accounts or making payments, and by the standardised trust framework that helps to secure the system, with trusted digital certificates used to automate the verification of participants’ identities and the validation of regulatory permissions. TPPs are also subject to the same security and licensing regulations as financial institutions and businesses.
A nurturing environment for the widespread adoption of open banking in mortgages
Increased support from all quarters will be crucial in creating an environment within which use of open banking in the mortgage sector can be encouraged, nurtured and refined.
As YTS CTO Roderick Simons wrote in a recent whitepaper examining perceptions and the reality of data security in open banking: “It is the duty of the regulators and industry to work together to provide the support and education businesses and consumers need, not only to understand what open banking is, but how it can directly benefit them.”
If regulators, lenders and TPPs join together in working towards more widespread education about and adoption of open banking in the mortgage sector, this collaboration will build momentum that could transform this sector during the next few years, by increasing efficiency, transparency and security.
This industry-wide collaboration would create a virtuous cycle of development and adoption that would have hugely beneficial effects for lenders and their customers, for the wider financial services industry, and ultimately for the UK economy.
Jack Tenwick is head of UK Sales at Yolt Technology Services (YTS)
