The revised Payment Services Directive (PSD2) came into force on January 2018, forcing banks to share their customer information with third parties (always with the consumer`s authorization). This is aimed at driving greater transparency, security, innovation and market competition within the financial services industry.
With PSD2, the European Parliament has mandated a revolution in the European banking industry. While most regulations tighten and control banking and consumer privacy, PSD2 opens up customer data assets to any party, giving grounds for better serving demanding or underserved consumers.
Since decades, the lenders have had to rely on “backward-looking” data to make lending decisions. Such data generally consists of passed financial information, typically reflected in credit bureau data; in countries where no credit bureau exists (such as France), this is based on static socio-professional and financial data (mainly declaratory…).
On the opposite, the data now available through PSD2-compliant interfaces (open banking data), consisting of exhaustive and detailed bank account information, are forward-looking. Indeed, apart from availability of data like customers salary, income from other sources and outgoings – all being data mandatory to make an accurate assessment of the customer affordability – it also brings into light the customers spending habits.
Overall, open banking data enables lenders to have a far greater understanding of the level of risk of each customer. This in turn enables lending decisions to be more precise, resulting in a more personalised experience for the customer. Such increased accuracy provides a true win-win situation for both lenders and borrowers!