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Alex Marsh

Head of UK, Klarna

Open banking can benefit consumers and financial services companies because sharing of customer data in real-time allows lenders to make better credit decisions.

Alex Marsh believes the UK could be on the cusp of a banking revolution. The big high street banks have had it too easy for too long, he says, because their customers have traditionally found it too troublesome to move to other financial services providers. But open banking — and, ultimately, open finance — is going to change all that by freeing up the system, making it more transparent and giving customers more flexibility and choice.

A more holistic view of finances

Marsh, Head of UK at Klarna, a Swedish fintech which provides online buy now, pay later (BNPL) services, points out that nearly 4 million people in the UK are currently using open banking — and in two ways.

Firstly, by making open banking payments at online checkouts that send funds directly to merchants or service providers at the click of a button. Secondly, by utilising a single app for a holistic view of their bank accounts.

Yet, Marsh thinks there’s another important way for open banking to benefit consumers and financial services companies — and, as a bonus, encourage more people to use it. “One of the areas we are active in — and where we see a very strong future for open banking — is credit underwriting,” he explains. “This works when consumers consent to share their bank account information instantly and securely with other financial services companies.”

There’s no financial incentive for us to offer our products to customers who we don’t believe will be able to repay us on time and in full.

Instant visibility of up-to-date customer data

Marsh notes that this type of instant data sharing is good for customers who have limited (or no) credit histories but still need to demonstrate their financial health before lenders will grant them access to their services.

“Take those usually younger people who don’t have a mortgage or credit cards, haven’t built up credit scores and therefore struggle to get access to lower-cost forms of credit,” he says. “They may have good incomes and be responsible spenders; but without a credit file, they can be unfairly penalised by lenders and pushed into taking out high APR loans and credit cards.”

However, with open banking, lenders have immediate visibility of their finances and can make quicker decisions about their credit applications.

This type of instant data sharing is also a boon for companies like Klarna, who have a social duty to lend responsibly. “There’s no financial incentive for us to offer our products to customers who we don’t believe will be able to repay us on time and in full,” says Marsh.

How ‘open banking’ will broaden into ‘open finance’

Lenders usually do this by obtaining information about potential borrowers from credit reference agencies (CRAs); although CRA data can be as much as four to six weeks old. On the other hand, open banking offers immediate visibility of an applicant’s financial data in real time. “Analysing up-to-date financial information allows us to comprehensively assess a person’s suitability for our interest-free services, which ultimately saves them money,” says Marsh. “That’s why I think open banking can be amazing.”

Still, he stresses that uptake of open banking (which is mandated by both UK and EU regulators) will only increase when consumers become confident that information is shared securely. “I believe the adoption of open banking will grow when customers realise the standards and protocols are in place to protect them — and they see the benefits it offers.”

Ultimately, Marsh expects open banking to develop into a wider open finance model if the likes of mortgage providers and pension providers get on board. “Open finance offers much broader consumer benefits,” he says. “That’s because customers will be able to view their entire financial situation — bank accounts, credit, insurance, mortgages, pensions, etc. — in one place and move freely between the best value financial products and providers.”

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