Borrowing and lending in the UK has followed a fairly standard business model for many years with individuals and companies usually taking out loans based on their credit rating. This is assessed based on several factors such as the length of their credit history, any payments they may have missed in the past and the type of debts they have accumulated. The whole point of a credit score is to give lenders a simple way to calculate risk. However, a number of open banking-enabled fintechs see this system as flawed and are providing new products which change the way affordability of repayments is determined. One such company is Fintern whose goal is to appeal to the fifteen million people in the UK with low credit scores. Fintern uses open banking technology to understand an individual’s transaction data and income in a more nuanced way than long-established lenders and offers loans based on that information. It’s loans range from £500 – £5,000 and are designed for the large under-served segment of the consumer market that isn’t able to take credit from mainstream financial institutions.
Mortgages are another area in which open banking is being used to help redefine affordability and speed up application processes. Many lenders and brokers have integrated this data sharing technology to help consumers take out home loans, remortgage their properties or even switch lenders with minimal effort. The mortgage broker Habito enables individuals to find the right loan from twenty thousand different options and charges no fees to do this. Once a mortgage has been taken out, there are apps like Dashly which looks at a person’s repayments in light of other commitments and marketplace offers and helps them to change provider if a better option is available. Fintechs with open banking powered products are not just targeting consumer lending. SMEs are a hugely significant part of the UK economy and various apps are streamlining the borrowing process for them. Funding Options looks at an SME’s business model and matches them to the most suitable loan options using real-time data. The challenger banks ClearBank and Tide are working together to create a product that connects debtor insurance companies, lenders and SMEs. All these companies have one thing in common and that’s to make SME lending quick, easy and secure. Open banking is already making pivotal changes to the way consumers and companies borrow money. Let’s see if this upwards trajectory continues.
Pay iO’s articles do not constitute financial advice and are for information only.