Lenders: win the instant economy with the power of open banking

Andrew Dellow, Director Strategic Account Sales at fintech Modulr, takes a closer look at the value of open banking.

Customer expectations have changed irrevocably. Convenience and speed are demanded as a bare minimum, and many consumers are more than willing to find an alternative if their current provider does not meet their requirements.

For lenders, the competition is greater than ever and many are under immense pressure to adapt to survive. The arrival of the Instant Economy – i.e. the new customer expectation of instant experiences and services – has meant smaller lenders are now able to effectively compete against traditional banks, as innovation has multiplied the efficiency of their services.

To further level the playing field with incumbent providers, lenders have a real opportunity to satisfy the growing gap created by the Instant Economy. To do that, they need new ways to level up the borrower experience across the board, with fairer, faster credit decisions and loan disbursements. Open Banking payments can make this a reality.

The power of open banking

Open Banking has changed the financial ecosystem; allowing customers to access new products and services from regulated third party providers including Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs). For lenders, this has unlocked new opportunities to radically improve the experience they deliver to their customers.

AISPs can provide lenders with access to real-time enriched data – such as spending patterns, income, debt and identity verification – with which they can build bespoke borrowing solutions. While PISPs can enable them to accept payments directly from their customers’ banks, delivering all the benefits that account-to-account payments bring, including a faster, cheaper and more streamlined process, and a superior customer experience. 

So, let’s dig deeper into the specifics of Open Banking, and discover the four key criteria lenders need to follow to genuinely remain competitive.

1. Deliver high-quality human customer experience

Customers prioritise convenience over cost, so getting customer service right presents forward-thinking lenders with opportunities to grow.

By improving the way customers engage with and repay their loans, all while reducing the time it takes to access cash, lenders will deliver greater value than ever before, and a better experience when compared to traditional lending institutions.

With Open Banking, lenders can allow for borrowing 24/7 and offer a wide variety of bespoke repayment options to meet the individual needs of each customer. These options are often accessed through single API integration, allowing for simplicity and ease of use for lenders – which all in all improves the overall experience for both parties involved.

2. Level up your operations with payment automation

Automation makes a genuine difference to the lending experience and helps unlock new levels of scalability. With manual payment processing expensive and time-consuming, payment automation helps reduce errors, all while not being limited by the speed of human input. So, it’s critical lenders have an effective strategy to enhance payments automation at every opportunity.

Through Open Banking, lenders can improve the efficiency and flexibility of payments, reduce the costs involved, and unlock better customer service opportunities. This further helps lenders disrupt the market and surpass their position in the race to win the Instant Economy.

3. Give customers finances at speed

To stand a chance against the competition, lenders must give their customers the finances they need, when they need.

Consumers and businesses alike now expect to receive services at the point of transaction and are prepared to pay a premium for this convenience – which can massively help increase lenders’ profits.

With access to far more data points when harnessing Open Banking APIs, lenders can rapidly evaluate customer applications and offer loans to customers within minutes. This gives modern lenders an added edge in the market to help them stand out against the competition – particularly against traditional lending institutions.

4. Reimagine established processes through digitally native Open Banking payments

Leveraging the opportunities presented by Open Banking payments, lenders can break free from traditional operating constraints and reimagine established processes, such as how they collect loan repayments. After all, traditional collection methods offer a fragmented customer experience, one that’s clunky at best, error-prone and unreliable at worst, and certainly not Instant Economy compatible.

But forward-thinking lenders can take advantage of Open Banking initiatives such as Payment Initiation and benefit from a friction-free way of accepting repayments from customers; reducing their reliance on expensive cards or error-prone bank transfers. Borrowers can instead be sent a link with pre-populated details for a fast, user-friendly experience. And now, recurring payments can also be set up in this way – thus bringing the longstanding Standing Order into the API-enabled digital age.

So, in conclusion, lending will continue to evolve over the next decade. Those forward-thinking leaders who embrace change and adapt to meet customer demand and expectations will be the ones who come out on top. But those who don’t, risk falling to the back of the line.

With particular emphasis on speed of loan delivery and ease of payments, lenders who simplify the lending process and improve convenience with the help of Open Banking empowered PISPs, like Modulr, will be able to take full advantage of opportunities and maximise their profitability.

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Offering a world-class customer experience that puts convenience, automation and technology at the forefront of their offering will ultimately help them win the Instant Economy.

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