Income Verification: The Next Stage in Open Banking
As I’ve iterated more times than I can remember over the last two years, the implementation of Open Banking has changed the face of finance for ever.
To my eye, most financial institutions have now reached base camp’ with Open Banking, that is to say, the development of account aggregation within mobile apps. This is nice, and I’m sure consumers are enjoying having access to all their accounts in one place.
The next stage will be for banks and financial institutions to begin deriving value from its use. Within the next year I fully expect to see new services being launched by banks and FinTech’s that will allow financial institutions as well as consumers to reap the rewards from Open Banking.
To that end, we here at The ID Co. have been working with banks and lenders over the last year to bring a new proposition to market.
The ID Co.’s Income Verification solution offers banks and lenders the opportunity to capitalise on the Open Banking opportunity.
We work with numerous banks and lenders. On top of that we’ve spoken to many more over the course of the last year, both in the UK and Europe, and across the globe.
As such, I have a fairly good idea in my head of some of the challenges that are witnessed in the banking sector. One of the biggest that we’ve witnessed is the need to cut operating costs in order to stay competitive.
It’s no secret that the sector is far more crowded than it was just 10 years ago. And some of the Challenger banks now boast healthy customer acquisition, impressive UX across their apps and the web, and innovative new services.
Banks and lenders therefore have the dual pressures of bringing to market new services that will make their core offerings stickier’, while also attempting to streamline back office solutions.
It’s for this reason that I’d suggest exploring an income verification solution.
Verifying income is vitally important for banks and lenders, ensuring they have an accurate view of applicant’s financial income prior to awarding credit in order to ensure they are lending responsibly and offsetting any future risk of bad debt.
Operational Costs
Having an applicant’s income calculated within seconds of them making an application for a loan or credit totally negates the need for paper-based bank statements. The savings in time and resource here are enormous. It could take a few weeks for an applicant to submit their bank statements. And in that time, there’s plenty of opportunity for them to decide not to proceed, or to find an alternative.
We’re sympathetic to the hurdles that banks and lenders need to jump through in order to grant a loan. As well as AML and KYC checks, there are new rules on affordability to consider. For these reasons and more, it is vital that a sound lending decision is made, and not only that, be able to demonstrate why it was a sound decision.
Income verification allows you to do just that. With a solution such as ours, banks and lenders can know an applicant’s income exactly and can then calculate their monthly disposable income accordingly.
Thin Credit Files
Many of us will have friends and colleagues who are not British by birth. It feels a long time since I made the long journey from Canada to Scotland, but it is one that I remember well.
With individuals moving homes and countries with such frequency why is it that when beginning life in a new country, you also start with a blank credit file? Those with a thin credit file, perhaps because they’ve just moved into the country, can now illustrate their earnings and therefore capacity for credit through income verification.
Credit Risk
It’s a difficult challenge because most people aren’t paid monthly, or consistently. With the gig economy, students, retired, and others, those that get paid monthly are in the minority. To make a decision around credit risk, Underwriters or others need some context on which to base a lending decision. We need to understand what kind of income applicant have ”“ frequency, recency and more are all critical factors.
And this works both ways. While those with thin credit files can demonstrate why they might be right for a loan, it also gives the creditor more protection as they can protect themselves from applicants unable to practically make repayments or those that pose a bad credit risk.
Fraudulent Applications
When we were conducting research into loan applications and how Open Banking could support banks and lenders, I was struck by the volume of fraudulent activity that financial institutions needed to filter out in order to service genuine applications. Open Banking removes any opportunity for fraud as through APIs, direct access is made with an applicant’s bank account. Our Income Verification solution then looks back over many months to calculate income, not just the last one or two.
Conclusion
Income verification is the first of the services that will allow banks and lenders to derive value from Open Banking. The savings in time, cost and resource through its use are enormous and as its such reception from those who have trialled it use has been universally positive.
Reducing fraud, servicing customers with a thin credit file, widening prospect pools of potential customers, and illustrating good governance are all vitally important to lenders in 2019. We think that the introduction of our Income Verification solution will give financial institutions the answers to these questions.
Pensions Dashboards ”“ a positive step forward for the nation’s financial wellbeing
By Anthony Rafferty, MD of Edinburgh-based Fintech, Origo
Improving the overall wellbeing of citizens is becoming and ever more important focus of government, an important element of which is financial wellbeing ”“ the vision being a society where people make the most of their money and pensions through being more financially aware and equipped.
Technology has an important part to play in this, notably in respect of the implementation of the Pensions Dashboards. Primarily, dashboards are about enabling individuals to find and view all their pensions in one place, thereby increasing engagement with their long term savings and retirement planning.
Last week the DWP published its Pensions Dashboards paper, which is the Government’s response to the consultation that ended in December 2018. It sets out the practical steps necessary to implement Dashboards, starting with the establishment of an industry delivery group by the end of the summer under the new Money and Pensions Service (MPAS).
Some initial commentator reaction to the paper suggested the project wasn’t being moved on fast enough, but the paper is what we expected at this stage in the project and we see it as a positive step forward. In the paper, government clearly stated its intention to introduce Dashboards as quickly as possible’.
The four key elements necessary to make the Pensions Dashboards a reality are governance, compulsion to provide data, state pension and digital architecture. Next steps for all of these elements have been addressed in the paper, which we see as good news.
What’s more, through the consultation, government was able to test its proposals with the industry, consumer groups and other interested parties. Some 125 organisations gave feedback and the paper says the vast majority’ of them agreed with the suggested approach.
This approach includes establishing a single Pension Finder Service ”“ the core architecture that orchestrates an individual’s search for their pension data across all pensions companies and which displays their data on the dashboard they have chosen to use.
Origo has taken a leading role in the project from the start, quickly demonstrating how the technology could meet the government’s policy intent and objectives. We have built and scale-tested the central components to more than handle the 15 million and more potential requests the service could receive. Furthermore, we believe that the digital architecture can be deployed quickly to meet the stated timescales.
Through the DWP paper, government has given dashboards the green light. The task now is for the industry to help MAPS and the delivery group take the project forward to launch. It is a most exciting challenge and one that can have a significant positive effect on the wellbeing of this nation’s retirement savers.
How Can Space Technologies Benefit the Development of Blockchain?
A new funding opportunity has recently become available to drive innovation in the development of blockchain through space technology.
The blockchain kick start activity scheme is searching for companies and organisations developing new technology to benefit blockchain in various sectors.
What’s So Important About Blockchain?
The development of blockchain technologies and applications has the potential to revolutionise wide-ranging sectors which affect our everyday lives.
The internet is being transformed into an internet of value, allowing people to exchange digital information and assets without the need for centralised structures such as banks and government agencies.
Digital assets include things as varied as currencies, identity information and property titles. Through blockchain technologies, these can all be stored securely, in a far more transparent way than ever before. This could help prevent against fraud or hacks across all business transactions in the future.
The industries in which blockchain could have the biggest potential include:
- Insurance: The digital storage of assets could eliminate the need for paperwork and make processes more streamlined.
- Financial services: Blockchain has the potential to cut out middlemen and banks from transaction processes through satellite technologies. It could even become a platform in itself for the trade of goods and services.
- Utilities: Distributed power grids run by IoT networks could decentralize the energy industry.
- Supply Chain Management: Blockchain could enhance asset tracking for better security and trust between stakeholders.
- Government institutions: Digitizing health records, tax systems and other documents could greatly improve efficiency within government institutions.
What’s Space Technology Got to Offer?
Space enabled technologies such as Satellite Communications, Satellite Navigation, Earth Observation and Human Space Flight Technology have a lot to offer the development of blockchain;
- Satellite Communications (SatComs) can expand coverage for blockchain users in remote areas or areas lacking in terrestrial communication infrastructure.
- Satellite Earth Observation (EO) could benefit the insurance sector through satellite imagery. For example, in the case of damage caused by flooding, satellite images could provide the evidence needed to speed up claims. It could also aid the supply chain management sector by providing detailed information on the location of valuable assets in real time.
- Global Navigation Satellite Systems (GNSS) are essential for any blockchain application that relies on geographical referencing.
Keen to Apply?
Any business or organisation wishing to apply for the KickStart activity funding need to follow these steps:
- Complete an online questionnaire found on the ESA-BA website
- Download the invitation to tender from the site and set up a Bidder Restricted Area’
- Produce a written proposal
- Submit your proposal and supporting documents by 8thApril 2019
Successful applicants could receive up to €60,000 in funding to complete their project.
Funding Blockchain Innovation
This funding initiative is being driven by ESA business apps, providing expert support to businesses looking to utilise space enabled technology in the development of new commercial services.
To find out more about the types of funding and project management support available, visit the ESA-BA funding page.
The Global Open Finance Centre of Excellence project hits a new milestone
The Scottish bid for the development of The Global Open Finance Centre of Excellence (GOFCOE) has received very good feedback from the Strength in Places Fund assessors and moves to the second stage as announced todayby the UK Research and Innovation organisation
In October 2018 a Scottish consortium decided to come together behind the ambitious project of launching the Global Open Finance Centre of Excellence in Edinburgh and apply for funding from the Strength in Places fund.
The University of Edinburgh, FinTech Scotland, Scottish Enterprise and the Financial Data And Technology Association (FDATA) joined forces to produce a very strong application.
Open Banking, and its impending evolutions into open finance more generally, is the biggest global trend in financial services, for people and for businesses.
A centre of excellence would be a world first, providing leadership, coordination, research and capability to support this rapidly expanding and evolving phenomenon.
The GOFCOE is one of twenty-four ambitious projects, from pharmaceuticals to aerospace, and transport to the creative economy, that have received early-stage funding to develop full-stage bids that could lead to significant economic growth in places.
The GOFCOE project will receive early-stage funding, which will allow for the development of full-stage bids.
Ultimately, eight of the strongest bids are set to receive additional funding to carry out projects designed to drive substantial economic growth.
Announced in the modern Industrial Strategy in November 2017, the Strength in Places Fund will benefit all nations and regions of the UK by enabling them to tap into the world-class research and innovation capability that is spread right across the country. The fund brings together research organisations, businesses, and local leadership on projects that will lead to significant economic impact, high-value job creation and regional growth.
Chief Executive of UK Research and Innovation, Professor Sir Mark Walport, said:
Our clear vision is to ensure we benefit everyone through knowledge, talent and ideas. Significant support through the Strength in Places Fund will further catalyse economic potential across the country by bringing researchers, industry and regional leadership together to drive sustained growth through world-class research and innovation.’
The Government confirmed in the 2018 Budget that the Strength in Places Fund is to receive a further £120m to bring the fund budget for the period up to 2021/22 to £236m.
Stephen Ingledew, Chief Executive at FinTech Scotland said:
“The Global Open Finance Centre of Excellence builds on Scotland’s heritage of financial services and enviable entrepreneurial track record combined with an enlightened and progressive culture which aligns the social and economic benefits of innovation. Going forward the Centre of Excellence focused on data driven innovation will support the inclusive growth objectives of Scotland, leveraging the ongoing role of international collaboration across Europe and globally with the private sector, consumer groups, academia, regulators, governments”
Jarmo Eskelinen, Director of the Data-Driven Innovation initiative at the University of Edinburgh said:
“The University of Edinburgh is delighted to support the Global Open Finance Centre of Excellence [GOFCOE] and to be developing this exciting project in partnership with FinTech Scotland, FData Global, Industry and Academia across the central belt of Scotland. The success of the Strength In Places Fund [SIPF] bid is confirmation of the importance of innovation for industrial strategy in the UK and we look forward to engaging with the consortium to develop the GOFCOE in the coming months. As a partner in the Edinburgh and South East Scotland City Region Deal, this project exemplifies all we are aiming to achieve through our Data-Driven Innovation initiative; attracting talent and investment to the region; linking world-class researchers and data analytics expertise with industry and innovating to drive new products and services.”
Danny Cusick, Director Multi Sectors at Scottish Enterprise said:
“We’re excited to be developing this project with our partners as it has the potential to bring substantial economic benefits through increased innovation and inclusive growth to firmly establish Scotland’s reputation as a world leader in Open Finance. Scotland already has exceptional capabilities in fintech and data and the Centre of Excellence demonstrates what we can achieve through collaboration to create competitive advantage for Scotland.”
Bringing Open Banking into 2019 with DirectID Insights
We’ve heard a lot over the last 12 months over the potential that Open Banking can bring, to business and consumers alike. For sure, there has been doubters, but for the most part any criticism has focused on the lack of uptake around Open Banking.
We at The ID Co. are never one to shirk a challenge. We were one of the first UK companies to advocate for the introduction of Open Banking, and we’ve now had over eight years’ experience working with bank data. Last year we delivered on the consumer facing side with the introduction of our app, NoMo, and now we feel we’ve delivered a first with our latest product, DirectID Insights.
To say we’re a little excited about what DirectID Insights can deliver is an understatement. We’re confident that DirectID Insights has the ability to re-shape the way that consumers apply for credit, and will change the way that those applications are then actioned.
As a first, DirectID Insights utilisesOpen Banking technology to deliver bank data into the hands of Credit Risk Officers, Underwriters and Fraud Analysts in seconds.
We all know the way that the traditional application takes place. While some of the basic information is entered online, financial institutions then all-too-often require bank statements to be physically posted in.
The repercussions surrounding this are obvious. The drop-out rate is high. The time between initial contact and the time banks can then start selling in products and services is extended. And worst of all, Underwriters and Risk Officers have to spend hours, potentially even days, manually evaluating bank statements to determine income, outgoings and everything in-between.
Now imagine if there was a way to deliver this information, electronically, in seconds, with all the information extrapolated out into a visual dashboard.
How much time, effort and resource could this potentially save financial institutions?
Think of the customer also. Rather than waiting around at home waiting for the post to know whether their loan request has been granted or denied, they can find out in minutes. It’s a win-win for everyone.
Well, this is exactly what DirectID provides. And it’s all provided courtesy of Open Banking.
For customer’s Open Banking is as easy as logging into their Online Banking. For lenders it offers all the bank data that they could need to make to grant or deny a loan. As an added boon, without the customer sending in bank statements, the ability to make fraudulent applications, or make applications based on spurious details, is seriously curtailed.
With zero integration, DirectID Insights offers a host of options that are critical for Underwriters and Credit Risk Officers, including Account summary to see an overview of each account; Deposits and outgoings analytics; End of day balances; Loan servicing; Gambling analytics and; Transaction Reporting. DirectID Insights offers up to twelve months of bank data for each individual or business which is categorisedand classified.
We’re confident that DirectID Insights will prove to be a major success for The ID Co. As I said at the top of the article, the min criticism with Open Banking has been the lack of uptake. We firmly believe that this new product is a business-critical tool that will prove to be essential for anyone working in Credit Risk or Underwriting, and we have Open Banking to thank for its creation.
Innovating with Data in the Financial Industries
Article written by Ian Allaway, Founder and Product Director at Wallscope
Wallscope has been working with Semantic Web Techniques and Machine Learning tools for several years. Their tools and services have been used to support Digital Transformation projects in the NHS and the Scottish Government. Here they explain how their technology can help manage big data across the financial sector.
“Like any large corporate or public sector organisations, the financial industries now have to come to terms with the ever-increasing growth of digital data. Data is typically stored in disparate sources ranging from legacy Content and Document Management Systems to relational databases and other data silos.
Finding information across these multiple sources can be time-consuming and overwhelming. There is a reliance on those who know where the information is stored, or the use of a traditional search engine to retrieve a linear list of documents.
How can a Knowledge Graph help?
A Knowledge Graph differs fundamentally from traditional search. It identifies entities (such as people, places, organisations or concepts) across vast amounts of data and exposes the relationships between them. This allows a dynamic exploration of resources which would otherwise be extremely time-consuming.
In the financial sector the use of this kind of technology has immediate benefits, particularly when combined with Machine Learning models. In the field of due diligence or know your customer, for example, it has many practical applications, allowing you to uncover related people, organisations or indeed financial transactions across multiple documents or data sources. It also makes it easier to collaborate across internal and external data sources, for example when performing credit checks. This has the potential to massively reduce the time spent on such operations.
Ontologies help us to organise complex information and aid the implementation of Knowledge Graphs. In the financial industries, existing ontologies are rapidly being developed and reaching industrial maturity, for example the Financial Industry Business Ontology (FIBO) and the STW Thesaurus for Economics.
Dynamic Data Discovery
Wallscope’s unique technology stack combines an Enterprise Knowledge Graph with Natural Language Processing, Named Entity Recognition engines and Machine Learning models to enhance the interoperability of contextual information.
Our Dynamic Data Discovery platform is currently being used within the Scottish Government and NHS Scotland to help unlock the value of their data. For example, we have developed a tool to help GPs work across disparate information sources, in order to better manage the care of patients recently discharged from hospital. This is a versatile application which could be used in any scenario where information sources are divergent. In professional fields where rapid response is a requirement it saves time and avoids unnecessary complexity.
We are now receiving interest from the financial sector which we are looking to expand on in the near future. We are looking forward to taking part in FinTech Scotland’s event on 27 September, exploring opportunities for cross-border collaboration between Scotland and Ireland.
Open Banking: Bringing Product Diversification & Consumer Choice
In a major vote of confidence in the future of Open Banking, Clydesdale Bank has integrated the DirectID Open Banking Platform from The ID Co. into its B mobile banking app. B analyses user data to make informed suggestions about spending and saving habits. Use of the platform will allow customers to see their account details and balances from all major banks and building societies in one location.
PSD2
Following the passage of the second Payment Services Directive in January, the nine biggest UK banks have been opening their data to approved FCA companies such as The ID Co. and other Payment Initiation Services Providers (PISP).
We have been extremely vocal in our support for Open Banking, bringing about, as it does, a tremendous opportunity for banks and customers. In the case of Clydesdale Bank customers, they can now import banking data from a range of UK banks including: Barclays, HSBC, Lloyds Group, Santander, RBS and Nationwide, as well as digital banks such as Starling and Monzo.
Future Developments
This is an excellent start for legislation that has only been in place for eight months. For both the industry, and consumers, the future is even more exciting.
The introduction of Open Banking and PSD2 are set to revolutionise the banking sector, as new players and smaller disruptor banks can level the playing field and compete with the established players. This in turn will lead to an upsurge in the volume of innovative products that are on offer to banking consumers, which will ultimately transform the sector.
Tech Innovation
Through the use of APIs, we expect to see further innovation and growth amongst new businesses in the financial technology space, as well as within banks directly. This is in part being driven by customer expectation. Consumers in the main continue to bank with the five largest banks (Lloyds, HSBC, Barclays, RBS & Santander), but due to their size and scope and lack of direct competition, services have not matured in line with technological innovation. Savvy consumers demanding innovative products are being offered more opportunity than ever to tailor the services that they are offered by financial providers.
“Clydesdale’s adoption of Open Banking is an exciting step forward in how Open Banking enabled propositions are helping customers securely move, manage and make more of their money.”
Imran Gulamhuseinwala OBE, Trustee of the Open Banking Implementation Entity.
Moving forward, we are confident that account integration will be viewed as the starting point for Open Banking. Companies, including the ID Co., are building products and services that will address such diverse issues as income verification, affordability, credit risk, and Know Your Customer (KYC).
These, individually and collectively, will impact upon major issues across the globe such as financial inclusion and servicing the unbanked, allow access to credit for those with thin credit histories, and drive down the cost of lending for consumers.
Digital Banks
The view amongst industry experts is that there is now a defined movement away from viewing banks as focusing solely on money, and towards banks becoming connected spaces for digital services. How banks react and take up this mantle could be key to their success in this new era of Open Banking. We have already witnessed banks such as Starling, Monzo and Atom Bank that have developed their proposition based on the ability to provide a “marketplace” of additional features to their customers ”“ albeit not based on Open Banking – and it is now up to the larger banks to respond.
Closing Thoughts
Open Banking has ultimately been brought about through the will of Government in order to offer consumers more choice and range in their financial products. Now that Open Banking is here and is happening, the response of the major banks will be closely monitored.
We are delighted that Clydesdale & Yorkshire Bank have understood the need to explore and implement functionality brought about through Open Banking, and we look forward to working closely with them. As more services and products are brought to market through fintech companies, challenger banks and the established players, we look forward to understanding their impact upon the industry, and ultimately the consumer.
Author
James Varga, CEO, The ID Co.
James founded The ID Co. in 2011 with a mission to create convenience””to allow us to sign up to new products and services in seconds.
The ID Co. builds products based on (open) bank data that helps businesses like online lenders to onboard their customers efficiently by solving pains such as affordability and credit risk.
Our DirectID business products help lenders to onboard their customers by removing friction caused during the application process by the current challenges of risk, compliance, fraud, and regulation.
The products we provide solve business pains such as assessing a customer’s affordability, verifying their account information, and thereby offsetting credit risk.
James is active in a number of local and global efforts to help people do more online, including the Fintech Delivery Panel (FDP), FDATA, Open Banking Excellence | Edinburgh, and Trust In Digital Life (TDL), whose mission is to create a trusted ecosystem that protects the data and assets of citizens and enterprises across Europe.
100,000 signatures for the Pension Dashboard petition
38 Degrees recently launched a petition in response to media reports that the Pensions Dashboard might not go ahead.
The report suggested that MP Esther McVey, the work and pensions secretary, was thinking of ditching the pensions dashboard due to more pressing priorities.
100,000 signatures
The petition has now reached 100,000 signatures, showing the depth of feeling and the support that the initiative has in the country. It also means that it can now be considered for debate in Parliament.
The benefits of the Pensions Dashboard are easily seen and have clearly struck a chord with people.
Anthony Rafferty, Managing Director at Origo said: “We at Origo have been passionate supporters of the Pensions Dashboard since the initiative was launched, believing it is essential to help individuals engage with their retirement planning, particularly in the new pensions environment which was ushered in with the pensions freedoms.”
The technology is ready
The technology was recently successfully tested on 15 million users. It is now ready to be implemented and used by customers and financial planners. It is seen as a vital tool with people working on average 11 jobs in their lifetime and struggling to keep on top of their various pension pots.
Anthony Rafferty added “We believe the Pension Dashboard is a superb opportunity for Government and the industry to provide a simple way for UK pension holders in the country to track their pensions, understand their value and what that means for their future and where appropriate, to act on their data in their best interests.
“The DWP Feasibility Study into the Pension Dashboard is expected to be published later this year which we hope will reflect the strong support the initiative has both within the industry and with consumers.”
Open banking: Catalyst for collaboration and partnership
Open Banking – the challenge
Opening Banking was a popular theme at the annual Scottish Fintech conference and it was analysed from numerous angles e.g. likely changes in the market landscape that might be triggered by Open Banking, how banks are losing the control over the purchasing process of financial products, and PS2D regulation.
During the conference, Phill Gillespie from Money Dashboard and I had the opportunity to host a workshop about Open Banking and the API ecosystem in the FS industry.
The underlying challenge we face in the FS industry is plain and simple”¦for most people FINANCES ARE BORING! But it is also true that without financial products we would not be able to protect ourselves and our families, we would not be able to sustain our lifestyle or achieve our personal goals. We do not think how cool buying a insurance is and we certainly do not brag with our friends about our pension plan, but we need these products because we want to travel safely and enjoy our retirement.
The power to re-organise the industry
At Inbest.ai, we think that Open Banking will allow companies to place FS products and services where they belong, co-piloting our lives and checking that we are taking the right decisions to protect our families, maintain our lifestyles or make our hard-earned salaries go further.
FS companies must be humble and flexible to seamlessly embed their propositions into the products and services we use throughout our lives i.e. banking should be a mean to improve our lives, not a goal on its own. To deliver this strategy, FS companies should understand intimately customers’ needs and behaviours as well as collaborate with companies in other industries to distribute their products and services. If FS companies keep working in isolation, non-financial players with large Balance Sheets will be more than happy to fill this market gap, as Bill Gates famously stated, “Banking is necessary, banks are not”.
Another alternative will be reducing their front-line exposure and focusing on a core part of the banking stack e.g. trading, foreign exchange, settlement. To succeed in this strategy, these specialised banking services should be easy to consume by companies that are downstream in the value chain.
All in all, regardless of the strategic route, partnering and collaborating should be a core foundation on the way modern FS providers operate, and APIs are the technological framework that makes this possible. FS providers should embrace the use of APIs across their different teams and divisions as well as with their suppliers and customers.
Want to find out more?
Inbest.ai is on a mission to automate, simplify and personalise long-term financial planning to make financial advice & guidance accessible and affordable. APIs are the backbone of our company and we use them not only to build, market and sell our Financial Planning platform but also to manage our business.