Open banking platform Tink has claimed traditional lending models are “broken” and urged lenders to prioritize improving their credit scores, after new research found only half of UK lenders use technology to derive a credit score based on bank account details create.
Tink surveyed more than 300 financial services executives in 12 countries as part of its fourth annual Open Banking Attitude Survey. It found that over two-thirds (68%) of UK lenders have tightened their affordability criteria since the COVID-19 pandemic. But Tink says there are still blind spots in credit checks, resulting in some customers being unnecessarily denied access to credit.
For example, in another study by Tink, a third (33%) of self-employed respondents say their employment status has prevented them from getting a mortgage and 31% say it has hindered their ability to get a loan. The fintech claims it’s evidence that “some people who can afford credit are being shut out due to outdated and narrow-minded credit scoring models.”
Tink’s findings also reveal a growing appetite for open banking technology, with 41% of executives saying they plan to adopt digital solutions for data-driven credit scoring.
Open Banking “Important to Protect Vulnerable Borrowers”
As consumers face a cost-of-living crisis and the global economy worsens, Tink claims that “today’s economic climate requires more rigorous affordability ratings than the traditional lending models that are used.” It states that better decision-making must be at the heart of lenders’ strategy to reduce risk.
Tasha Chouhan, UK & IE Banking and Lending Director at Tink, says: “It is clear that many lenders still rely on traditional credit checks to determine loan eligibility. There is no place for such models in our current economic climate, and the sooner this is recognized, the better the outcome will be for both lenders and consumers.
“New pioneering models are leveraging open banking technology to provide a holistic picture of people’s finances. It is crucial to protect potentially vulnerable or vulnerable consumers from problem debt or default when the economic climate deteriorates. At the same time, it is key to promoting financial inclusion as people now more than ever need access to safe, affordable and regulated credit options.”