IT development has become an unrivaled source of progress and, among other advances, has facilitated the incorporation of external services in the banking and financial sector thanks to the evolution of open banking. From its creation until today, the offer of services that take advantage of this technology and the access to them has only grown.
Evolution of digital banking and the services they offer
This model took its current form in mid-2010. The first banking services of this type are offered to the consumer in Europe from the following years, and finally, in 2015, the revised Payment Services Directive (PSD2) of the European Union was approved.
This directive regulates the operation of the so-called APIs (Application Programming Interface), which are essential for establishing the security requirements and protocols necessary for the sector to develop in its current format.
Currently, financial institutions are already regulated with open banking, allowing the user to be the owner of their financial data and to decide to whom they give it. This has made it easier for third parties, for example fintech startups such as ourselves, to develop applications that exploit the value of this open technology.
Strengths of loans using open banking technology
Open banking technology offers a multitude of advantages in the management, handling and processing of financial transactions carried out by the user. Not only that, but open banking applications simplify the processing of applications thanks to the availability of up-to-date data. That is to say, thanks to the permission granted by the user to access his banking information, the lender and the user himself can have a very real picture of the latter’s current financial situation and his level of risk.
Likewise, by reducing the effort in the management of operations and increasing the reliability in the calculation of the risk of non-payment, the cost of operations is significantly reduced. Therefore, on the user’s side, better payment conditions and larger amounts can be obtained. And on the lender’s side, it is possible to avoid false positives due to having made the risk calculation through more classic forms that can be falsified, such as payroll, income tax returns, etc.
Disadvantages of digital loans
Digital loans that make use of open banking may have some disadvantages. First, users who are not digital natives or those who are still reluctant to share their financial information may not be able to access this type of service. While the pandemic forced many people to go digital and become familiar with online financial services.
Another potential disadvantage of online lending with open banking for the user is that it can result in the approval of impulsively requested loans, since once the user accesses his or her bank transaction, the lender can evaluate the transaction and approve it on the spot. For the lender, however, this is a great advantage by reducing the friction involved in the approval time.
Digital loan acquisition simulators
Faced with the overwhelming offer of financial services and digital loans, there are tools that simplify the task of searching and contracting these services. Indeed, the so-called digital loan simulators make it possible to visualize the amount and final payment conditions of a given loan in a clear and intuitive way.
Thanks to this type of online platforms, the applicant can simulate loans according to his profile and particular needs and choose the one that offers optimal conditions. Among the types of information that these simulators offer, one can mention the repayment term, the amount of the installments, the commissions and interests, and other particular conditions of the service and compare them with those of other loans.
In addition, this type of platform facilitates cross-selling and the contracting of other related products such as embedded insurance for payment protection.
To conclude, services around Open Banking have significantly improved the performance of banking operations and their variety. As a result, users have greater knowledge and financial management capabilities. If you would like to find out more about how you can take advantage of open banking, we invite you to contact us to discuss a use case applied to your company.