Brandon Wallace, Senior Product Manager at financial data intelligence company Bud, explains why, contrary to misconceptions, use of open banking data in the affordability assessment process can help lenders increase approvals without taking on extra risk.

It’s a common misconception in the lending industry that using open banking data in lending processes will lead to an increase in declines. This perspective comes from the idea that more data means discovering more reasons to reject borrowers. But the opposite is true: open banking data can help lenders discover reasons to approve customers they would have otherwise declined, all while maintaining or even reducing risk.

It’s true that better data enables lenders to decline higher risk customers (leading to a better performing portfolio). However, the few extra declines are outweighed by the increase in approvals lenders achieve by using open banking data to take a second look at thin-file, poor credit, or credit-invisible customers. These applicants are almost always declined when assessed on credit reference agency data alone.

At Bud, we’ve seen first-hand how open banking data, when combined with traditional credit reference data, opens up new lending opportunities. Our clients are reporting that they’re accepting more customers as a result of supplementing credit reference agency data with open banking data. One of our credit broker clients, TotallyMoney, saw a 22% increase in approval rates when lenders used enriched transaction data, compared to using credit reference agency data alone.

One of our credit broker clients saw a 22% increase in approval rates when lenders used enriched transaction data, compared to using credit reference agency data alone.

In terms of reducing risk, open banking data is proving equally valuable. One of our lending clients, Moneyboat, has seen a 20% reduction in missed payments since incorporating open banking data into their affordability assessments. This demonstrates how transactional data can identify risky behaviours—such as loan stacking, high Buy-Now Pay-Later use, or problematic gambling —before they result in defaults.

Beyond increasing approvals and reducing risk, open banking also offers significant operational efficiencies for lenders. By streamlining the lending application process, open banking reduces the need for manual data entry and analysis, resulting in faster decision-making and lower operational costs. For instance, our client Blackbullion reduced application times from forty minutes to less than five minutes by incorporating open banking data into their application process. Moneyboat also saw impressive gains, achieving a 25% reduction in processing time for returning customers and a 16% reduction for new customers.

With the right partner, integrating open banking into your existing systems and process is seamless, allowing lenders to reap the benefits of efficiency, speed, and reduced costs without overhauling their operations. The time for lenders to fully adopt open banking is now. Rather than being a barrier to lending, it is a powerful tool that can unlock lending opportunities while supporting customers who have been underserved by traditional credit assessment methods.