Prepare and beware
In January 2018 the credit industry will see the introduction of what will likely be the biggest revolution in credit risk practices in a generation and you need to be prepared.
Open banking (which you may have heard us talking about before) will open up bank transaction data at a granular level, giving credit providers access to arguably the most powerful source of underwriting intelligence available from a single avenue. Businesses will instantly be able to access detailed bank statement level data showing a consumer’s income, credit commitments, overdraft behaviour and general expenditure. This data will be instantly retrieved directly from the consumer’s bank and will be a real-time view of their financial behaviour.
So WHAT do you need to do in order to be PREPARED?
If you haven’t already looked into open banking, you should do so right away. You’ll find lots of useful information at www.openbanking.org.uk
Secondly, you need to review your company’s strategy for the use of open banking data (if you have one) because, to be frank, you simply won’t have a realistic choice whether or not to use it. The data will be so rich in detail and so powerful that when your competitors are using it they will have a distinct credit risk advantage over those who do not. Traditional credit reference data simply will not be sufficient in future, it will have an important part to play, but its significance will diminish greatly.
And finally you will need to have a practical solution in terms of the technology you will be using to leverage this new data and the partner or supplier you will be sourcing it from. It is imperative that you understand how to actually interpret the data within your underwriting policies.
This is the point at which the health warning is required. Be in no doubt, many tens of millions of pounds of investment have been poured into (mainly) new business which have been set up to exploit this brave new world of open banking. They have been busy developing shiny new technology platforms and recruiting eager sales forces to tell you how powerful and unique their open banking solution will be compared with their competition. I for one am looking forward to seeing the much-anticipated innovation that is sure to emerge over the coming months and years and no doubt there will some very exciting technical interpretations of how open banking data can be used.
The risk however is that suddenly every new provider in this space will be an “expert” and a “specialist” and they will be looking to hoover up as much business as possible whilst this shiny new data source is a novelty buzz word in its infancy. So I urge you to ask yourself this very important question; aside from the technology which they have developed, what makes this person, this company, the expert or specialist in which your business should place its trust? What experience do they have? How long have they been working with this data and how long do they intend to be around?
The relatively little-known fact however is that some companies have been providing this service to credit providers for many years and indeed have a wealth of experience as to how the bank data can be leveraged. The technology which predates Open Banking is commonly referred to as screen scraping and Yodlee have been doing it for over a decade. LendingMetrics works with Yodlee and has been offering its own solution, BankVision, since 2013. LendingMetrics have learned an enormous amount about this data over the past 4½ years, having established relationships with dozens of lenders, integrated with multiple decisioning platforms and executed millions of transactions. We own and operate proprietary categorisation algorithms to sort the data into usable characteristics capable of being easily interpreted by automated decisioning technology, in fact we also build the auto decisioning as well (see www.lendingmetrics.com/products-services/adp) But most important of all our professional services analysts have embedded effective, tried and tested underwriting rules into countless decision engines and worked with credit providers to retro analyse results and fine tune rules to achieve the desired outcomes. We even advise on how best to seamlessly introduce the data request authority into the customer journey.
Whatever your view on who best to use, now is the time to act. Begin to question your own organisation about its approach to open banking and good luck with the journey. 2018 looks set to be a very exciting year in credit risk.