Open Finance Needs Data To Break The Monopoly of Credit Ratings
It's a fair trade!
Open Finance is the future; few debate that, but just how open is open? The UK’s Centre for Finance, Innovation and Technology (CFIT) gives us a glimpse.
Most of us are willing to share bank details with third parties for “Open Banking,” but the next step, “Open Finance,” is far bigger and has implications for data privacy.
CFIT proposes additional data sources to help break the monopoly of credit reports. Their choices are not overly invasive and can help extend access to services for many, just like Alipay’s “big data” underwriting did in China.
👉TAKEAWAYS:
My comments follow the four bullets that come from CFIT
1. A lack of data sharing impacts financial outcomes for consumers and SMEs.
I agree with CFIT. This is undeniably true! Our current system in the West is data-starved. Reliance solely on credit reports may deny financial services to those who may deserve it!
2. Expanding the number of datasets available to financial institutions can improve consumers’ and SMEs’ access to finance.
True! This could well serve those with marginal or poor credit. Alipay did it with “big data” loans in China and the West should do it as well!
3. We have identified, ranked and prioritised additional datasets that could be used today.
Most of the categories below represent negligible privacy sacrifices, and CFIT is on target provided they allow better access to financial services!
For people:
mortgage accounts,
rent,
utilities,
council tax payments
buy now, pay later (BNPL) transactions.
For small businesses:
VAT,
tax returns,
Companies House information
4. When we unlock these datasets, we must put customer consent at the heart of the experience.
We all know that banks will make this data mandatory! You can hear it now: “You can’t get the loan approved without the data.”
👊STRAIGHT TALK👊
I like this and think it will help many people with poor credit history due to extenuating circumstances.
First, let’s clarify: if you are employed and have a good credit history under the existing system, none of this will likely help you. Your car loan won’t be any cheaper!
This product works best when used to help those with poor credit ratings but good personal habits. Need an example? Look at people in the US who have to pay enormous medical debts and are discriminated against due to a poor credit rating.
These people have many years of good payment history that can’t help them given financial services’ dependence on credit rating. This is wrong, and these additional data sets can help.
They also won’t help those with habitually poor payment histories and credit. No amount of additional data will help.
A limited target group will benefit from this system, and I think we owe it to them to try.
Credit reports have a lock on access to financial services, and we can do better.
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