Credit risk changed in 2020. It was a challenging year for the lending industry, with business slowing as lenders adapted to new conditions brought by the pandemic. In a time where access to credit was vital for many Britons, numerous lenders had to pause or cease lending, as widespread uncertainty and instability made it extremely difficult for lenders to perform accurate risk and affordability assessments.
Understanding a borrower’s current financial situation became imperative. It was great to see many lenders quickly move to adopt Open Banking in order to return to lending responsibly, using new data to get a comprehensive and up-to-date picture of an individual’s financial situation. Lenders also used Open Banking technology to streamline processes and improve operational efficiencies to manage the increased customer support requests for payment holidays.
Consumers sought tools and services that would help them manage their finances better as financial vulnerability became a new reality for many. Research from Nesta found that 1 in 5 adults began using online banking apps during lockdown, and consumer adoption of Open Banking skyrocketed with users doubling in the six months leading to September 2020. Individuals are now more willing than ever to share data in exchange for a valuable product or service: with limited face-to-face interaction, and a greater need to manage finances, COVID-19 has made us very familiar with transacting completely digitally.
So what do I think is in store for this year? 2021 is a year of recovery and growth, spurred by greater digital adoption. Those that are creating bespoke and personalised financial products for consumers will continue to lead the pack. As more and larger lenders further their use of Open Banking data to reduce costs and more accurately assess risk and affordability, I think it’s likely these savings will be passed onto consumers in the form of better deals and in the medium term, lower interest rates and fees. Lenders relying on outdated and manual processes are increasingly at risk of being left behind. Already, we have seen innovative products and services provide huge value for both lenders and their customers, using Open Banking data. With many already having adapted quickly to meet the needs of their customers in the current situation, I’m excited to see what this year brings.