Credit risk & open banking

[eteb3]

Is there any scope for using the new Open Banking regime to reduce credit risk?

In theory, could you have access to (and run a machine over) all someone's spending in the past 6 months, and then monitor it throughout the life of the loan?

Context: possible (=hoped-for) microfinance outfit working in the inner cities of the Midlands.

 

[Mark T Jones]

I will watch responses with interest

Our industry is being very slow to adopt open banking - which might just be inertia, but I suspect they have yet to see any benefits

 

[Newchodge]

I appled for a loan recently and part of the process involved giving something technical the ability to look at my bank account. Is that what we are talking about?

 

[eteb3]

Sounds like it is.

Any chance the application was to a credit union?

 

[Newchodge]

Sounds like it is.

Any chance the application was to a credit union?

Yes, don't other lenders do that?

 

[eteb3]

Not that I’ve seen so far - but that’s what this thread’s trying to discover.

The CU version (NestEgg.ai) looks like it makes lending decisions. It’s an interesting model: basically the CU can subcontract its loan approvals to the AI, which doubles as a broker for the borrower, placing the loan with the lowest approved rate. So CU becomes just the capital provider and risk carrier.

Not quite what I’m looking for, because my idea relies on very thick social bonds to reduce defaults (therefore rates), which is the opposite of a liquid market.

But it’s proof that it’s possible!

 

[JEREMY HAWKE]

Open banking!

Anyone expecting me to get involved with that can go and spend some time in a room on their own pleasuring themselves.

It's a disgusting lack of respect for individuals and businesses

@Newchodge I cant imagine a person of your calibre getting involved in such schemes

 

[Newchodge]

Open banking!

Anyone expecting me to get involved with that can go and spend some time in a room on their own pleasuring themselves.

It's a disgusting lack of respect for individuals and businesses

@Newchodge I cant imagine a person of your calibre getting involved in such schemes

I wasn't aware I would be asked, until I was. I did not say that I agreed!

 

[eteb3]

Anyone expecting me to get involved with that can go and spend some time in a room on their own pleasuring themselves.

It's a disgusting lack of respect for individuals and businesses

Strong reaction! Can you say why you think it shows a lack of respect?

And out of interest, would you refuse to send copies of past 3 months' statements if applying for a mortgage?

 

[JEREMY HAWKE]

Strong reaction! Can you say why you think it shows a lack of respect?

And out of interest, would you refuse to send copies of past 3 months' statements if applying for a mortgage?

Sending copies is not open banking

Open banking is when someone can look at your bank electronically when required

 

[eteb3]

Open banking is when someone can look at your bank electronically when required

I guess I thought of it more like a one-time, machine-assisted audit of the statements, so less need for poring over them manually (our potential customers are unlikely to have any credit file at all, or else a bad one).

I did mention ongoing audit, too, though that was less of a strong commitment. I think you have a point: general life experience suggests all-round surveillance changes the behaviour being surveilled. People quickly go to burnishing the presentation, rather than presenting the reality.

 

[eteb3]

PS I understood 'open banking' to mean you could operate your current account through any number of banking windows, which compete on service; and borrow from any number of providers, who compete on price. That lets the banks get on with pure intermediation, theoretically making the system less vulnerable to their stupid bets.