Brandon Wallace, Product Manager at transaction data intelligence specialist Bud, explains why he believes forward-thinking lenders should use transaction data to improve outcomes throughout the lending lifecycle.

Access to credit isn’t just about borrowing money – it’s about empowering people to manage their finances and navigate life’s ups and downs with confidence. In today’s regulatory landscape, ensuring that customers receive fair treatment, support when needed and clear information to make enlightened decisions are more important than ever. Consumer-permissioned transaction data via open banking can help lenders to meet regulatory expectations and drive better customer outcomes.

OPEN BANKING TRANSACTION DATA DRIVES CUSTOMER-CENTRIC LENDING

Being able to tailor loan products specifically to customer needs, based on real-time insights into financial behaviour is made easy though transaction data. We can gain a clear picture of customers’ financial health, from essential expenses to savings habits. This allows lenders to offer loans that are affordable with rates that make sense – reducing the risk for both parties and helping customers manage their finances more effectively.

REGULATORY COMPLIANCE: NOT A HURDLE, AN OPPORTUNITY

Navigating regulatory compliance obligations can be daunting, especially for smaller lenders with limited resources. But here’s the twist: meeting those regulatory expectations can actually help lenders serve customers better.

The Consumer Duty requires us to deliver good customer outcomes. It sets a higher standard for consumer protection and requires us to prioritise customers’ interests at every stage with clear communication, fair pricing and proactive support.

While regulatory requirements often seem like a hurdle, they also present opportunities for innovation. By embracing open banking, lenders can not only streamline compliance but at the same time improve customer outcomes, and ultimately business outcomes. It’s about creating a lending environment that’s fair, transparent and responsive to customers’ needs, fostering trust and loyalty.

HOW DOES OPEN BANKING TRANSACTION DATA IMPROVE CUSTOMER OUTCOMES?

Building trust and transparency: Decisions based solely on traditional credit scores can be non-transparent and slow to reflect current financial realities. By using real-time spending and income data, lenders can provide clear, transparent decisions. This can make it easier for customers to understand why a product is suitable or not.

• Convenient and stress-free experience: Open banking automates the collection of financial information, sparing customers from answering difficult questions such as: “How much do you spend on food every month?”. The process is seamless, near-instant, and makes the application experience more user-friendly.
• Precise affordability assessments: Open banking allows lenders to use actual spending and income data to evaluate an applicant’s true affordability position, instead of relying on generic or outdated bureau data. This ensures that the lending offered is truly reflective of what customers can afford.
• Personalised solutions: By leveraging actual spending and income data, lenders can tailor their product offerings to fit customers’ real financial needs. This not only reduces financial stress and promotes financial stability, but also aligns with the Consumer Duty regulations, ensuring that lending decisions support fair value and appropriate customer outcomes.

IMPROVE YOUR BOTTOM LINE

Beyond customer satisfaction and regulatory compliance, use of open banking transaction data can also cut costs and grow profitability:

• Streamlined affordability assessment process: Open banking automates the collection and analysis of transaction data, eliminating the need to manually sift through bank statements to understand a customer’s affordability. This can significantly speed up the lending decision process while reducing your operational costs.
• Fewer defaults: Gaining deeper insights into your customers’ financial behaviours allows for more accurate affordability assessments and tailored product offerings. By understanding the nuances of your customer’s spending habits and income patterns, you can offer products that are genuinely affordable for them. This reduces the likelihood of defaults, ultimately boosting profitability.
• Optimised collections process: When customers do default, open banking can support a more efficient collections process. With automated data collection and real-time insights into a customer’s current financial situation, you can tailor your collections strategies to be more effective. This might involve offering more appropriate repayment plans based on the latest financial data, thereby improving recovery rates and reducing the costs associated with collections.

CONCLUSION

The future of lending is here, and it’s driven by data that puts customers first. By using transaction data through open banking, lenders not only keep up with regulations, they set a new standard for customer care and innovation.

Let’s embrace this opportunity to make lending simpler, fairer and more rewarding for everyone involved.