This is clearly down to the fact that very few examples of Open Banking in action actually exist, despite leading international institutions such as BBVA, Santander, Citi and Fidor, as well as a host of emerging challenger companies announcing their support.
Open Banking and collections
Though Open Banking may not become mainstream for some time, forward-thinking experts have already started considering its potential to enhance and improve the future of collections. For example, the time savings for both agents and customers could be huge, particularly when linked directly to the completion of a Standard Financial Statement (SFS). The SFS – designed to summarise a person’s income and expenditure, along with any debts they owe – can be up to 16 pages long and is manually filled out by the debtor. Though primarily used by debt charities, they can also be used by lenders to establish when and what level of repayments the debtor can afford.
Open Banking has the potential to transform this arduous, not to mention off-putting process if it could part-populate the SFS with accurate data through integration access. Though this would not result in a fully completed document, it would enable perhaps up to 80% of the SFS to be completed by the borrower on a self-service basis, allowing collections agents to quickly and securely get a picture of a debtor’s financial situation and speed up the overall process.
This partial completion of the SFS via digital engagement could help the lender either agree a sustainable repayment, or identify where it should consider an earlier referral to a debt charity who could use the information as a starting point to a full SFS. The time saving could be significant – not to mention commercial common sense.
The value exchange
In order for Open Banking to become part of the collections process, both debtors and lenders/service providers need to be clear about its mutual value.
Firstly, by aiding and encouraging the debtor to build their own SFS-based affordability statement, it could reduce the participation of agents in later stage arrears. This is because the statement can form the basis of a collaborative resolution; a payment arrangement, or allocation to a debt charity. Automating elements of the SFS is a great leap in the process of achieving intelligent debt resolution.
On the downside, Open Banking data is only likely to apply to a proportion of accounts in arrears – typically those in the later stages of collections. This means that while the benefits for those falling into this eligible category are clear, the rewards are less likely to be seen in the wider collections context. Another challenge lies in the complex design required to develop a best practice process for digital self-service engagement and ensuring the debtor is guided through the process of allocating their transactions into the required SFS categories. This complexity demands a unique combination of great software development skills and experience, deep collections expertise and best practice user experience design.
The Flexys position
The applications of Open Banking are in their infancy and at Flexys we recommend that credit providers take a considered approach, based on sound collections principles and processes. That said, we are hugely excited by the potential for Open Banking to help both lenders and customers to collaborate to resolve debts in an intelligent way. Our R&D team is already working with industry practitioners and academics to develop an initial proof of concept of Open Banking at work in the collections world.
Although the use of data from Open Banking holds significant potential for all parties, there understandably remains the risk of great scepticism from consumers. Our advice is, therefore, to monitor developments and uptake around Open Banking. Electing to take an early adoption strategy in your collections process before it enters mainstream consumer use could result in disappointingly low uptake resulting in the need for significant further investment to refine and develop a suboptimal first attempt.
However, if your business gets it right, as part of a considered, evolutionary approach, you will be able to agree better-performing arrangements leading to more satisfied customers and improved longer-term relationships. In addition, you could opt to signpost customers to adopt a money management solution or app based on Open Banking principles to create long-term budgets and manage household expenditure more effectively in the future.
Open Banking is expected to revolutionise the traditional operation models entrenched in financial institutions. Collections operations have the chance to disrupt their debt management processes, too.
Astra Baker, Marketing Manager at Flexys Solutions