The pandemic has halted the proliferation of traditional paper-driven, face-to-face loans and forced commercial lenders to move toward digitalization. Not only this – fintech companies addressing the same issues are on the rise and are giving traditional consumer lenders a run for their money. Manual processes associated with reviewing, servicing, tracking, and maintaining commercial loan transactions have become automated. Technological advancements have allowed for more reliable and simpler application processes.
Here appetite for “Open Banking”, pace picking up worldwide. Consumers allow third-party providers to use the financial information held by their bank to make decisions on which businesses are eligible for loans.
Why does business lending use Open Banking?
Lenders require account data to make decisions on which businesses are eligible for loans. Open Banking—driven by regulatory, technology, and competitive dynamics—calls for banks to use APIs to make certain customer data available to non-bank third parties. The innovation is both evolving the industry toward hyper-relevant, platform-based distribution and giving banks a rich opportunity to expand their ecosystems and extend their reach.
Cloud-based APIs are at the heart of fast and efficient digital transformation strategies. Simple plug-and-play functionality makes it possible for financial institutions to adopt an integrated environment of applications, all designed to automate critical workflows to return faster credit decisions. The method of aggregating data across multiple accounts into one, easy-to-use platform, offering customers a 360-degree view of their spending and simplifying the ever-growing number of financial touchpoints customers encounter daily. Open banking will also enhance real-time payments, going head-to-head with the card scheme to enable instant transactions between retailers and consumers.
Open banking allows for automated bank statement collection. It also provides data on the debt and cash flow profile of a business that enables business lenders to understand the financial health of a business.
The potential benefits of Open Banking
1. Improved customer experience
2. New revenue streams
3. Sustainable service model for traditionally underserved markets.
Future
From offering personalized insights to simplifying payment transactions, Open Banking provides the spark banks need to develop modern financial tools that provide even more value to their customers. It’s like a collaboration between traditional bank players and new financial players. Moreover, open banking is helpful for SMEs as well. Via APIs, fintech companies will be able to access different types of accounts, insurance, card accounts, and leases, and consolidate data from multiple countries into one frame.
