Banks data disconnect calls for more inclusive credit scoring

Conventional credit scoring systems are proving inadequate to meet the evolving needs of the modern workforce. A recent study sheds light on a significant issue—UK gig workers are facing financial exclusion due to a disconnect in data access experienced by banks and lenders. 

The research from Rollee reveals that 70% of UK gig workers find it challenging to gain approval for financial products. Among the surveyed gig workers, a staggering two-thirds (66%) have faced loan denials despite their affordability, pushing them to apply for an average of three credit cards or loans before approval. The ramifications extend to housing, as 34% have lost out on securing a new home despite having financial affordability. The struggle to access financial services has led to 80% of gig workers feeling they lack the equal access to financial services as traditional full-time workers, inducing financial stress and pushing them to contemplate alternative employment options. 

The root cause of this financial exclusion lies in the limited transparency of income and employment data for gig workers compared to their PAYE counterparts. Financial institutions themselves acknowledge the limitations of their current risk assessment processes, with 73% stating an inability to see a complete picture of a gig worker's payments, income, and employment records. As a result, a startling 34% of financial institutions are more inclined to approve applications from PAYE workers, citing greater visibility into their income and employment details.  

Addressing the data disconnect for a fairer future  
Independent workers contribute £20 billion to the UK economy every year and are a growing workforce. Addressing these challenges is critical for both financial inclusivity and to enable financial institutions to service an expanding market.  

The solution lies in bridging the gap between the current limited data available to assess credit risk and a complete picture of a worker's income, employment status, and activity records. Gaining a complete, holistic view of data ensures that credit assessments consider not only financial transactions but also the capacity of gig workers to repay.

Data transparency potholes 
Yet when trying to leverage alternative income and employment data, financial institutions often grapple with the potholes of data integration. Attempting to leverage and integrate data from freelance platforms and HR software through public APIs in-house often encounters roadblocks and bottlenecks. Negotiations with platforms for access to private APIs can lead to refusals, and scalability becomes a daunting challenge with the integration of multiple platforms. This method demands significant investments in resources from backend, data, and DevOps teams, hindering data-driven decision-making and growth. The technological complexity of this approach further limits its effectiveness.

While open banking has shown promise in allowing secure sharing of financial data, its focus on bank-based payment data remains a limitation. Financial institutions need seamless access to alternative data sources in real-time, achieved through automated connections to multiple income and employment platforms. Financial institutions must focus on scaling up integration efforts across markets and regions made possible with an external API infrastructure. 

The adoption of automation in consolidating and standardising data not only leaves behind time-consuming manual processes but also simplifies the complexities faced by internal tech teams. Moreover, it empowers gig workers by granting them control over their data, allowing them to share financial ownership without relinquishing control of the data itself.  

The final frontier of open finance 
Embracing this transformation requires substantial investments in data infrastructure and a fundamental willingness among financial institutions to evolve. Bridging the data disconnect is the last frontier for open finance, crucial for levelling the playing field for gig workers and recognising their contributions to the economy.