Imagine you’ve been retired for a few years. You’ve paid off
your mortgage, you don’t have other loans, and you’re financially secure. Now
you want to borrow some money to help one of your children purchase a home.
And now consider a different situation: You’re a recent
immigrant, and you need a loan to open a business.
In both cases, a lender could sometimes reject you—not because
you have any blemishes on your credit report but because there isn’t enough
up-to-date information in that report. In the traditional credit-scoring
system, if you haven’t borrowed money recently, it’s almost like you don’t
exist.
Taking root in the financial world is a simple concept that
could change how you interact with your money—and, yes, in both these cases it
could help you gain access to that loan, too.
It’s a concept called “open banking.” At its core,
open-banking tech is software that lets you give lenders or fintechs access to
some of your banking data. It’s akin to the privacy permissions on your phone
that allow an app to use your camera or storage. And, as with app permissions,
you’re in control of how your information is shared. You may be using
open-banking software already, since it’s the tech infrastructure powering some
of the most popular financial apps, including Dave, a money-management app that
helps customers avoid overdrafts, and Robinhood, the stock- and options-trading
platform.
This technology is part of a revolution in commerce and
banking, with consumers embracing digital payments more quickly than ever
before. That trend was already in motion for years and was sped up by the
pandemic, which forced a huge shift in consumer adoption of online shopping and
contactless cards. In this new digital world, open banking empowers consumers
to make the best financial choices for themselves and can bring more people
into the global economy by making it easy for them to save and send money.
Open banking will ultimately help just about everyone with a
credit card or checking account get more out of their relationship with their
bank. It gives you the ability to take the financial data that’s usually housed
at your bank and have it start working a lot harder for you. It should also
build more trust with millions of consumers by giving them more control over
their information.
For instance, you probably have accounts with a variety of
banks and apps. Open banking could eventually let you move the information for
all those accounts into one real-time dashboard of your choosing, so you can
see all your money in one place, in an atmosphere where your financial
information is well protected. With all that data brought together, personal financial
management tools can be overlaid atop that information to give you deeper
insights into your spending and savings.
The potential for that kind of simplicity and convenience
will encourage financial services companies to keep innovating to make sure
they are providing you the very best user experience—knowing that you may start
using a different service if you aren’t satisfied.
Added to that, open banking will increase access to credit
to help a lot of people who couldn’t previously get loans for home down
payments, school tuition, or new vehicles. If you decide to use an open-banking
service in applying for a loan—and millions of people already have—you allow a
lender to verify your income and look at your cash flow details, including cash
balance and spending patterns. Those details, together, can offer a far better
picture of your creditworthiness than a single credit score.
Oftentimes, credit scores don’t offer an up-to-date picture
of your finances if you haven’t borrowed money recently. These open-banking
services fix that problem.
I find this kind of technology so exciting because it helps
people take advantage of valuable financial tools that before were just out of
their reach. It’s with these kinds of services that our hypothetical excluded
borrower—a retiree or a new immigrant or, really, anyone else—can secure a
loan. That kind of work will bring many more people into the digital economy,
strengthening it and making it a more equitable place.
I know this greater convenience and broader access can’t be
achieved without trust. As tech companies and banks develop ways to put your
financial data to greater use, there must be controls, there must be
transparency, and there must be a system where data gets used only when
consumers grant permission.
That means the consumer needs to be at the center of what we
do as we create this new ecosystem. Done right, it can create more financial
opportunity for everyone.
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