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Open banking – the key to combating fraud

Fraud in the UK is by no means a new problem, but in the past few years, the scale and complexity of fraudulent activities has increased to worrying levels. According to the latest Crime Survey for England and Wales, there was a 54% rise in fraud and computer misuse offences, between December 2019 and December 2021.

One much overlooked, but rapidly increasing, form of fraud is tenancy fraud. Given the ongoing rental crisis, created by a lack of available properties and skyrocketing rental prices, tenancy fraud is becoming more profitable, with people using more sophisticated methods to illegally obtain access to properties.

The most common ways in which tenancy fraud is carried out involves providing false or doctored identification or documentation (right to rent, income statements, landlord references, employment references, etc). While agents and landlords have long been aware of the risk of fraud, new technologies are making it significantly more difficult to detect.

The significant advancements in technology used to fight against fraudsters and their attempts to commit financial crime are being embraced by many industries — not least in lettings. AI tools such as open banking are making a real difference in the referencing process used by letting agents, boosting their ability to flag and refute fraudulent tenancy applications.

So, how does open banking work exactly?

At one point, people were worried about how secure mobile banking was, but now nearly everyone uses it as it is quicker, easier and secure. Open banking is very similar, with many now realising not only how easy it is to check statements via open banking, but moreover, how beneficial the added security measure is.

While agents have previously thought that the best way to check someone’s income is to check their payslip, these can be easily defrauded as there are even numerous companies that you can go to that provide fraudulent payslips.

The financial technology securely opens up banking data, such as transactions, credit cards and loans to authorised third parties. These third parties are then required to go through a detailed due diligence process to get regulatory permission from the Financial Conduct Authority.

Then, with the permission of the bank account holder, these third parties can help consumers to make better-informed decisions around their finances and to manage their money easier.

In simple terms, open banking helps people to move, manage and make more of their money.

And by presenting a transparent picture of a tenant’s income, open banking not only paves the way for a far simpler and quicker referencing process, it also adds a layer of protection against fraud. While agents have previously thought that the best way to check someone’s income is to check their payslip, these can be easily defrauded as there are even numerous companies that you can go to that provide fraudulent payslips. Open banking means that lettings agents can verify your income based on the pay that actually goes in to your bank account.

A necessary preventative for fraud

Open banking provides letting agents with a snapshot of their tenant’s financial behaviour based on their income and rental payment history directly from their bank – of course, with the tenant’s permission. It’s an instant process that can help speed up the referencing process dramatically and ensures that information cannot be falsified.

This is hugely beneficial in providing agents and tenants alike with peace of mind when it comes to verifying tenants and validating their income and expenditure. Anti-fraud tech like open banking also has the capacity to save landlords huge amounts of money; analysis from Goodlord revealed that individual landlords would have lost a combined £1 million over the last year without anti-fraud technology in place to prevent suspicious documents and fraudulent information from being submitted. In fact, those using open banking were able to ensure that not a single fraudster was able to get through, which really exemplifies the importance of the tech.

While the referencing industry has remained archaic in its approach for some time, the rise of open banking has great potential to reduce fraudulent activity. Currently, about half of Goodlord’s applicants are being verified through open banking, but this is increasing every year - all of a sudden, we’re seeing a great uptick and no doubt, this is just the beginning.

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Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 27 September, 2022, 10:51Be the first to give this comment the thumbs up 0 likes

A crook tenancy applicant who supplied fake proof of income documentation before is now going to let a third party access her bank account and get caught red handed? How realistic is that?

It's more likely that she will not apply to become tenant in the first place and shift her fraudulent activity to some other industry that does not access bank account.

Net net, IMO Open Banking will reduce fraud - but only by reducing renting volumes.

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