There is no doubt that Open banking has the potential to reshape both the competitive landscape and consumer experience of the banking industry. But what role will this innovation have to play in the debt collections process?
What is Open Banking?
The promise of Open banking is faster and easier ways to control and share our financial data, which in theory helps consumers make more informed choices and gain access to more benefits. It is also known as "open bank data." And as a banking practice it provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and other financial institutions via the use of APIs (application programming interfaces).
Open Banking and Collections
A 2018 survey by PwC found that many consumers would rather share their medical information than the details of their banking transactions or financial situation. And interestingly, a You Gov poll from August 2018 found that 72% of UK adults had never heard of Open Banking. It seems that consumers have little awareness of Open banking, so we must interpret its potential impact on the collections process with a certain amount of reticence.
Nevertheless there are many ways in which Open banking could potentially have a major impact. Firstly, when linked directly with the completion of an SFS (Standard Financial Statement), major gains can be predicted. The SFS, which by definition summarizes an individual’s income, expenditure and debt, is manually completed by the debtor and can reach 16 pages in length. Open banking could reduce the time taken to carry out this task by part-populating the SFS on the consumer’s behalf. In practice this means collections agents can promptly ascertain a debtor’s financial status, and their overall process is sped up. As ever, time-saving automation practices are incredibly beneficial to the whole debt collection industry.
Secondly, the transparency of sharing consumers’ data, which is a direct result of Open banking, certainly has the potential to enhance fraud detection. The waiting time for the return of debtors’ spending records significantly reduces in the world of Open banking, and debt management solutions are more swiftly integrated. Open banking certainly promises a more robust and reliable solution for both the business and the consumers they serve.
But What are the Concerns?
When it comes to the collections industry, a great challenge of Open banking is found in software development. To successfully guide a debtor through the process of a digital self-service engagement is challenging. This complex process needs great software, which can guide the debtor through the process of allocating their transactions and financial data in the required SFS categories with ease.
We must also consider the security risks of Open banking of course. There is a potential risk to the privacy of the data of consumers, and the corresponding liability demand will land at the feet of banks and institutions. APIs are certainly not without their security challenges, and malicious third-parties could infiltrate consumer’s accounts. As data becomes more interconnected, which must work harder to protect it.
Collections integration with Open Banking promises many rewards. If you’re tied down by tedious, labour intensive tasks in pursuit of debt collections, get in touch with Lateral to see how we can improve and streamline your collections process.