Pablo Viguera
Co-CEO and CO-Founder
Belvo
/
Startup Contributor

Four Benefits of Open Banking for Banks

By Pablo Viguera | Thu, 04/28/2022 - 13:00

Open banking is a powerful innovation that has contributed enormously to accelerating the transformation of the financial sector, allowing new products and services to be built in a short time on the basis of a standardized API.

With this premise in mind, open banking and open finance solutions have the potential to become catalysts for growth and, let it be redundant, innovation for other productive sectors, such as banks, especially in regions such as Latin America, where there are high rates of unbanked people, high rates of bank fraud and where cash is still the king of all transactions.

Broaden Credit Offers

As mentioned, Latin America is a region where large parts of the population are either unbanked or have limited access to products, with a debit account being often the only service they consume.

This results in sparse financial information that does not provide a complete profile of the user, limiting the ability of credit models to analyze consumers' financial lives and reducing the amount of credit that can actually be offered.

All this can change drastically with open banking solutions, as in addition to providing up-to-date customer banking information, they provide data enrichment services, such as risk insights and income verification.

With this new data, banks can better feed their risk models and provide credit offers more easily, as they will now have a 100 percent realistic picture of the potential customer's financial situation, knowing their real income and ability to pay.

Strengthen Risk Models

One of the great challenges facing banks in Latin America is having automated, efficient risk models that provide useful insights into the consumer's financial life. In this region, the scarcity of banking information on users reduces the number of people who can access a credit offer.

With open banking, credit-risk assessment models can be strengthened by taking advantage of the transaction history in savings and checking accounts, analyzing the relationship between income and expenses, to build a risk profile in seconds and help identify default indicators based on spending patterns found in these transactions.

In this way, more people can be included in financial life: alternative and enriched data allows a view on financial data outside traditional institutions and offers the ability to provide credit to all users who do not have a credit history or who were rejected by conventional credit engines.

Create Customized Offers

In addition, open banking offers banks the ability to create and launch tailor-made products and services for customers. With access to rich and organized user data, banks can create solutions based on the consumer's spending and consumption patterns, actual income, as well as the consumer's ability to pay.

With this information, banks would now have the ability to innovate and launch products, such as micro-loans in a shorter period of time, efficient and optimized personal finance management apps and mortgage loans with better interest rates.

Reaching a New Type of Customer

Undoubtedly, one of the clearest benefits that open banking and open finance solutions provide to banks is the ability to reach new audiences, all through high-quality data from multiple sources. Banks would now have wider access to users' real financial data: information from accounts at competing banks, tax data and data extracted from gig economy apps, among others.

With these new sources of information, banks now have a golden opportunity to offer services to people who have historically been excluded from the traditional financial system: they can now provide credit to people who have no credit history or to people who have previously been turned away due to lack of information.

These are just some of the benefits that open banking can offer for banking institutions, in addition to the speed with which it can be implemented. Banks have a fast and powerful ally in companies like Belvo that offer the key to access the real data of people across Latin America.

Photo by:   Pablo Viguera