For many individuals and small businesses alike, Covid-19 has resulted in the unthinkable.
UK Finance data shows that nearly 2 million borrowers have been granted a mortgage payment holiday, which accounts for 1 in 6 mortgages in the UK. This is a welcome relief for many households, but what do these families do when the support is withdrawn, and how should lenders respond?
Despite the best intentions of the UK Government’s various schemes, such as the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CBILS), businesses – particularly SMEs, have suffered terribly. Large corporations, though better financed and more likely to weather the storm, have been forced to make huge cutbacks that have had huge ramifications for UK Plc.
In my opinion, the above problems are caused by the following reasons:
- The continued use of bureau data, which can be 6-12 months old. In today’s world, this information is out-of-date and redundant. We need real time data to understand today’s view of individuals for businesses cash flow position.
- Processes which involve paper and manual workarounds to work out things like identity or income and sources of wealth are still in use.
- The use of antiquated technology and systems to obtain an aggregated view of customers financial health.
- Regulators urge for innovation, but the culture at financial institutions is still prohibitive with fear of change still taking hold; it takes too long to partner and to solve a real business problem with FinTech’s as an example (we need to move beyond just accelerators and garages). We need real collaboration.
- No one wants to fail. Paulo Coelho once said; “There is only one thing that makes a dream impossible to achieve: the fear of failure”. We really need to try new things and now is the time.
This pandemic has pushed us all into a corner and we are starting to see the freeze, flight and fight responses emerge. At the forefront of the fight response is the Open Banking sword, which is being wielded with even more vigour since the start of the crisis. Open Banking data and technologies are fighting the fight with the following:
- Providing real time access to bank account information and therefore the present view of financial health and cashflow. This can be extremely powerful for lenders who are managing a payment holiday book; providing better predictive capability and the option to provide more suitable products and services (based on real time tracking of affordability). For SME lenders it is equally powerful; identifying signs of financial distress intraday and intervening with exigency.
- Managing and mitigating real risks such as application fraud and financial crime. Consumers and businesses can accidentally or purposefully misrepresent their financial status to underwriters and collectors. These risks can be partially or fully eliminated using products like bank account verification, income verification and predictive Open Banking analytics.
- Removing the manual efforts associated with onboarding. This can provide a straight through process for low risk applicants and a speedier resolution for high risk applicants and those who are classed as exceptions.
The new C-Suite role has arrived; the Chief Coronavirus Officer (CCO), and she is driving digital transformation and Open Banking adoption at a faster rate than we have ever seen before.