What are the Open Banking Affordability use cases?
"The impending issue for lenders, particularly those in the HCSTC market, is that lenders need to complete a thorough affordability assessment of each applicant prior to issuance of credit.<br/><br/>
As we have detailed in past articles, the intricacies surrounding affordability make even a simple loan application exponentially more complex. Part science, part backward looking, and part future-gazing, the assent of a loan will require a panoply of data and the ability to interpret the results.<br/><br/>
Where loan providers could historically restrict themselves to the examination of credit risk (“what is the risk the loanee will not repay the loan”), they must now consider the applicant and the financial impact that acceptance of the loan will have on their finances (“if I approve this loan, is there a chance it could cause them financial distress”). Taken together, credit risk and affordability make up an applicant’s creditworthiness.
The effects of this consideration are sure to be considerable. At this time, a lender will check an applicant through credit reference agencies. This gives an understanding of the type of loans, credit cards and bank accounts the applicant has, and has had historically. They may also request bank statements to be sent in to gain an understanding of salary or income, and regular outgoings. Based on this information they can make a judgement on whether the applicant has the necessary resource to repay the loan.<br/><br/>
Affordability adds another dimension to this equation by demanding that as well as the above, the lender also consider what the impact will be on the applicant should the loan be offered. To complicate matters further, they must also consider what an unexpected incident (serious illness, divorce, job loss etc) will have on the applicant’s ability to repay the loan and whether this could leave them financially distressed.
This new step will require more detailed information being requested and consumed from the applicant. Requests for documentation, as any financial institution can attest, slows down internal processes, lessens the chance of the applicant completing the application, and lengthens the time from initial contact to being able to bill for services."<br/><br/>
Sourcing: Direct ID<br/><br/>