Open Finance - improving consumer credit

The consumer credit industry is arguably more open to change and innovation than most across financial services, and therefore a beacon of opportunity for Open Finance.

• 15 million people in the UK do not have access to affordable credit, creating huge disparities in financial inclusion.

• Credit risk assessments can unintentionally disadvantage people based on background, ethnicity and gender.

• To many, credit scores are opaque, confusing concepts that are hard to improve.

“We are seeing more and more gender and racial imbalances in algorithms across financial services where data goes into a black box – if the designers of the black box are a typical genre of person it will come out with that kind of bias.” - Felicia Meyerowitz Singh, CEO of Akoni 

How will Open Finance enhance the consumer credit market?

Help those in a cycle of perpetual debt

We frequently talk about credit, but often we neglect the other side of the coin: Debt.

OpenMoney is helping consumers to manage, save and invest their money, based on a complete view of their financial situation. For those in need, this journey begins with actionable advice to eradicate debt.

Despite offering investment products, this approach puts the suitability, wellbeing and awareness of the customer at its heart – because Open Finance has the power to do more for customers.

“This touches on vulnerable customers and personalisation before making assumptions or pushing product”, Vaughan Jenkins, Director of Business Development at Moneyhub.

Help those that struggle to access suitable products

Credit Kudos is transforming the credit scoring system, using financial transaction data to enable fairer and better credit decisions. They provide rich insights using Open Banking data to help lenders, brokers and financial institutions better understand a borrower’s financial behaviour. Their insights provide credit providers with a more detailed view of an individual’s current financial situation than what would be contained in a traditional credit report. These insights help lenders more accurately assess the affordability and credit risk of an applicant, in turn helping them to increase acceptances, reduce defaults and make faster credit decisions.

Among other things, this is being used to increase responsible lending within the burgeoning and sometimes controversial Buy Now, Pay Later (BNPL) market. Credit Kudos’ enriched affordability insights enables BNPL lender Zilch to make more informed lending decisions.

Account Score similarly use bank transaction data to produce affordability assessments, but bolster this with traditional bureau data through their long-time partnership with Equifax – creating a detailed, holistic view of an individual or small business.

Their Financial Health Index has conclusively shown that women have a greater credit worthiness than bureau data alone would determine. This begins to remove the systemic bias that has existed for years and prevents swathes of credit worthy individuals from accessing the financial products they may need.

Experian too have recently released their Scoreboost service. Consumers can share their banking data to boost their credit score and access better value services. Across the years, Experian’s front foot approach to data integration has allowed them to develop many products which enhance consumer’s financial lives.

Help those that lack financial awareness

It’s well understood that financial education across the UK is low.

By analysing bank transaction data – in the future, holistic financial data – credit bureaus, reference agencies and lenders should be in a position to help customers to improve their credit worthiness.

Freedom Finance and AccountScore’s FusionScore is being used to surface an individual’s credit score whilst educating them with gentle nudges to move customers in the right direction.

“More and more people want to educate themselves, and we are incredibly passionate about enabling that because financial education is absolutely critical.” Emma Steeley, CEO of Account Score

Open Finance considerations within Credit solutions:

Don’t marginalise those at the margins

Personalised pricing may benefit those in favourable positions at the expense of those that need access to credit. Credit Kudos’ collaboration with the Serve and Protect credit union for military and police has allowed previously underserved customers access to more affordable credit, with a rebate baked in when the individual displays positive financial behaviours. Through personalised products they have increased access to credit whilst improving financial education and wellbeing.

Product suitability can’t be ignored

Not everyone should have access to credit – Open Finance has the power to prevent greater hardship for those most in need.

Credit might not be the best answer

Greater availability of data is creating positive alternatives to credit. As one alternative, FastPAYE allows you to get access to the money that you’ve already earned before your predefined pay day. Importantly, it’s not credit.