How to beat the impending debt wave with bank data

In a perfect situation, you would be able to immediately understand your customers’ financial situation, including their risks, and have a personalised conversation with them about how to best meet their debt obligations in a way that is sustainable for them and makes sense for you.  

The problem is that this requires a lot of manual work and valuable business hours. You need a number of documents from your customer, which need to be assessed individually, followed by a personal conversation to really understand their situation. If you are using multiple software systems and/or dealing with lots of unstructured data, this adds a hefty workload and a greater risk of errors creeping into the calculations, both of which drive up the cost of doing business.  

If you are reading this, you are probably at least somewhat aware of open banking. But to recap, there are two main pillars to the concept:  

1. Banks must share account data with third parties such as businesses, under strict regulations, including that the customer (whether they are an individual or business) must give their consent to sharing their data.  

1. Banks must enable “open banking payments” - another way of saying direct account-to-account transactions. 

With access, businesses can gain accurate, complete transaction data from their customers, and/or initiate payments. 

Open banking can help mitigate the risk of the upcoming debt wave in a number of different ways.  

1. Assessing the state of the customers’ finances 

With open banking you are able to access 18 months' worth of transaction data, which in our case also takes you back just past the beginning of the pandemic, or in a few months' time, will be able to help you understand the impact of the end of furlough or other initiatives. The great thing about this information is that unlike pdfs or other documents, it is 100% accurate and gives you a clear picture of how much money goes in and out of the account each month, giving you the objective information necessary to make the right decision for your customer. 

1. Automating manual processes 

If you are using manual processes to assess the creditworthiness of existing customers, there is an embedded cost in each assessment that, at scale, can be an expensive cost of business. For example, if you have a customer service agent spending 20 minutes assess documents manually, and are assessing 1,000 customers per month, that is 300+ hours of manual work. But if you could pull the data automatically and have someone spend just a couple of minutes assessing the finances, that is several hundred working hours saved. In addition, it means far fewer pdf files and unstructured data to store and manage.  

1. Cheap, low fraud, (recurring) payments 

Credit card processing comes with three fees; a processing fee, which is charged by your payment provider for processing the transaction, a card scheme fee, which is charged by the card schemes for using their network, and an interchange fee, which is charged by the shopper's bank. This makes them expensive, as well as being open to fraud.  

By contrast, with open banking payments, the transaction is simply between two bank accounts, enabled by a provider such as YTS. This simplicity and the fact that fewer parties are involved means that fees can be a lot lower – by as much as 90%. This can protect your margins, particularly at scale. And furthermore, your customers never have to enter sensitive bank account or credit card information. They simply select their trusted bank and authenticate to complete the payment, resulting in almost zero fraud.  

But what is perhaps even more interesting is recurring payments. With your customer’s consent, open banking solutions such as YTS offer the possibility to create a recurring payment. This means that you can set the optimal date to charge your customer (when there is most likely to be money in the account based on historical data), the amount of the payment, and be confident that it will be paid on the first try each month. Again, this has the potential to save significant amounts of money and time currently wasted on chasing customers with letters or on the phone. 

Open banking has a lot to offer leasing businesses as we come out of Covid and head into a period of uncertainty around customer debt. But actually, its benefits are just as applicable to normal times as well, enabling smarter decisions around customer onboarding, cheaper and more seamless payments, and a better customer experience.