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Emerging trends and the future of Open Banking in collections

28th September 2021.

Our Director of Developments and Partnerships, Andrew Alder, discusses the Open Banking trends that have emerged during the pandemic, and how this technology is benefitting the collections, lending and debt advice sectors.

The pandemic has seen the reliance on technology surge over the past two years and businesses across all sectors have had to transform the way they operate – not only in terms of managing their employees, delivering products and services and dealing with customers – but also adapting to a digital world and cashless society.

This also applies to collections and debt advice – and Paylink Solutions has already introduced new products and processes to support clients, their customers and the wider financial services industry.

Paylink Solutions introduced Open Banking in 2018 and have since developed our offering to make the whole process much slicker by integrating a whole host of new features and services, which have massively enhanced how customer data is collated and held. Subsequently up to a third of the collections affordability assessments that are carried out via our solution now come from Open Banking data.

I’ve worked in the debt and collections industry for many years, and during my time at one bank during the 2008 financial crisis, I remember looking into the idea of customers consenting to their bank account information being transferred to another bank.

These conversations formed the concept of Open Banking and the subsequent EU directive that came into play in 2009 around this technology and how it could help to increase competition.

Open Banking trends that have emerged during the pandemic

During the pandemic there’s been a significant increase in the number of people setting up online accounts, which is obviously a key component for Open Banking to be accessible and successful. Around 15% more people now access Open Banking on their mobile device and with biometrics being embedded in that journey, this adoption rate is set to continue.

Increased demand to implement Open Banking

Over the past couple of years, there’s been a huge demand to digitalise the affordability process and integrate Open Banking across the collections and debt advice industries to complement digital self-serve affordability journeys.

Affordability assessments are also high on lenders’ agendas around the quality of customer conversations, which can be very transactional. Firms are now seeing Open Banking as a fair solution for both parties as it reduces the risk of advisers having so many affordability conversations with customers. 

How Open Banking can add value to the collections process and vulnerable customers

With the increased accessibility and use of digital I&E tools, we’re starting to see consumers who will only engage and complete the process if there’s an Open Banking option.

Open Banking can certainly help people who are struggling financially, by quickly and accurately understanding their affordability and providing a deeper insight into how much of an issue their debt problem is. I think it should be rolled out across the industry though to fully optimise engagement rates and completions.

Earlier this year, the FCA commented on how Open Banking can support collections with tailored guidance on affordability assessments. As part of this it stressed the importance of having a single solution to cater for customers and advisers – and the need for improved UI and UX to give them the best possible journey.

When it comes to non-financial vulnerabilities, there are several data entry points within Open Banking that can highlight potentially vulnerable customers through their transactional information. Having said that I do think the industry needs to work collectively and creatively to fully explore how Open Banking can do more than some of the current and obvious examples in play.

The products and services Open Banking is currently used for

Open Banking is currently used across several lending products, including mortgages, loans, credit cards, car finance and personal current accounts. Interestingly, we don’t tend to see any customer behavioural biases towards certain products.

With inflation currently soaring and the possibility of interest rates increasing, there will be a demand to use Open Banking for pre-emptive engagement, especially by mortgage lenders. The value exchange for this will be key as there will be no immediate consequences in them not engaging unless lenders can communicate the benefit and how they could support customers if they are struggling.

How Open Banking data can be used to drive the right customer outcomes

We’ve seen long-term kept rates performing around 7% better from Open Banking-pulled budgets. I would argue overall that this, along with disposable incomes being an average £21 higher than non-Open Banking budgets, is helping consumers liquidate their debt faster and ultimately become debt-free sooner.

We’ve also seen the benefit of consumers self-serving their affordability, which allows advisers to review information in advance before speaking to them. Some of our clients are also seeing better conversations and improved QA scores, along with a reduction in detrimental and high-risk call scores.

Educating consumers about Open Banking and its benefits is improving

The increased opportunities to use Open Banking outside of collections has helped to educate customers. As an industry though, we need to use these examples more and reference them as it helps consumers realise they’ve already been using Open Banking – but it’s now being used on a wider scale.

Increasing awareness of the benefits of Open Banking within collections

There does need to be more best practice shared across the industry. We are starting to see more case studies in lending, but it takes time and collections is still on that journey. This will progress though, and like what we’ve seen historically, it will balance itself across financial services over time as adoption rates increase.

Lenders need to invest the time in promoting Open Banking to customers and their staff. One of our clients for example is carrying out an Open Banking survey with more than 900 employees, whilst another is about to share its NPS results for customers who used Open Banking and compare this with non-Open Banking NPS. These insights will help identify any process or software changes and what customer communications are required to optimise adoption rates.

How Open Banking will be embedded in collections in the next five years

There are already many creditors who have embedded Open Banking, which allows customers to set up a payment arrangement digitally. Firms are also using Open Banking to carry out re-occurring data pulls, which provide them with regular affordability information and allows them to put customers into flexi plans. Although this is a relatively new concept, it has a lot of potential to be more widely adopted.

I believe as more and more firms – and customers – use Open Banking, it will only increase in popularity and become firmly embedded within collections, lending and debt advice journeys.

Crucially, I believe the way in which Open Banking is used is as important as the technology itself. When used in isolation, many lenders have reported very low engagement rates. However, we’ve found that integrating it into a full I&E journey, with CRA, Arrangement modules and API integration to debt advice, builds trust and allows customers to see their wider financial picture – meaning we regularly see Open Banking engagement rates as high as 65% versus an industry standard of 20%.

Find out more about Paylink Solutions here.