Digital lending has become a remedy for the pain points customers are experiencing with traditional lending, namely cumbersome loan processes and good credit history requirements for getting access to bank loans. In addition, the appearance of digital lending was caused by the digitization of personal finance management because digital lenders were looking for ways to satisfy customers who expressed a preference for digital services.

What is Open banking: meaning and essence

Open banking is a practice of banking when financial information (consumer banking transactions or other financial data) is securely shared with third-party financial service providers. The data is shared by means of application programming interfaces (APIs) and only with the consent of customers.

Consumer lending: changes

Technological advancement has greatly sprinted the change in consumer lending. Due to the availability of data, lenders can look deeper now than simply calculating the credit score for analyzing a customer's creditworthiness and assessing risk more accurately. Now, digital lenders have access to education details, employment history, and spending habits for a better understanding if applicants are able to pay their debts or not. The access to customer personal data has become a basis for a new way of looking at credit scores. The introduction of algorithms, machine learning, and AI make digital lending apps capable of detecting, predicting, and eliminating fraud, as well as upgrading and simplifying administrative tasks. 

Another crucial change is that non-banking institutions were introduced into the consumer lending space. Backed by blockchain and AI, a great number of peer-to-peer (P2P) lending companies are emerging to give traditional financial institutions a run for their money.

Open banking: alliance with Consumer lending

Recently, consumer lending is becoming increasingly and even totally digital. Due to open banking technology companies build processes for increasing approval rates and conversion rates for customer creditworthiness.

Open banking enables financial companies to automatically acquire and analyze open banking data of clients who have a limited or no credit history. Moreover, the use of open banking increases the speed of loan application processing, screening, and approval. The implementation of open banking helps to cut down administration costs by reducing the amount of manually entered data and allowing population risk-critical information.

Consumer lending: what’s in the future?

The consumer lending industry requires constant innovation for further continuous development and growth. But it is also necessary to have proper regulations to ensure safety and ethics in this sphere. 

New regulatory concerns considering customer protection and limitation of risk associated with financial markets have emerged because of new digital credit products' appearance. In Europe, for instance, malpractices in the consumer credit market have been exposed by increasing concerns regarding the Consumer Credit Directive by emphasizing the need to review certain provisions of the directive, such as the credit-granting process. The Directive should be revised to make it future-proof and technology-neutral to enable it to be relevant with ongoing technological developments.