06 Apr 2023

The Use of Open Banking and Transaction Enrichment on Business Underwriting

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Michael Jenkins

Product Marketing Lead

Open banking has revolutionized the way financial institutions operate, with a primary focus on enhancing customer experiences and fostering innovation. In the business lending space, open banking has created new opportunities for lenders by providing them with a wealth of data, which has significantly transformed the underwriting process. This article explores the impact of open banking on the underwriting process and the challenges that arise due to the non-standardized nature of the data. We will also delve into the role of transaction enrichment in mitigating these issues and facilitating quicker lending decisions.

The Open Banking Revolution: More Access to Data

Open banking has democratized access to financial data, empowering underwriters to make more informed decisions. With the consent of the borrower, underwriters now have access to real-time financial data, enabling them to assess the creditworthiness of a prospective borrower more accurately. This data-driven approach allows lenders to extend credit to businesses that may have been previously overlooked due to a lack of traditional credit history.

The Messy Reality: Data Standardization Challenges

While open banking has opened the floodgates to a vast trove of valuable financial data, it also presents challenges in the form of messy and non-standardized data. This issue arises due to the varying formats and structures of data provided by different banks and financial institutions. As a result, underwriters often need to spend additional time and resources cleaning and reconciling this data before making lending decisions.

The Power of Transaction Enrichment

Transaction enrichment plays a pivotal role in addressing the data standardization challenge. By leveraging machine learning algorithms and artificial intelligence, transaction enrichment providers can analyze and categorize raw transaction data, transforming it into structured and actionable insights. This process not only streamlines the underwriting process but also enhances the accuracy of credit assessments, leading to better risk management.

Benefits of Transaction Enrichment in Business Lending Underwriting

  1. Quicker Lending Decisions: Transaction enrichment significantly reduces the time spent on manual data reconciliation, allowing underwriters to make faster and more informed lending decisions as well as increasing operational efficiencies
  2. Global Market Expansion: With transaction enrichment providers offering global coverage, lenders can quickly launch in new markets without the need to scale up their in-house solutions, thereby reducing operational complexities and costs.
  3. Improved Risk Assessment: By providing a clearer and more comprehensive understanding of a borrower's financial behavior, transaction enrichment enables underwriters to make better risk assessments, resulting in a more robust lending portfolio.
  4. Enhanced Customer Experience: A streamlined and efficient underwriting process translates into a seamless borrowing experience for businesses, fostering customer loyalty and driving growth for lenders.

The advent of open banking has undoubtedly brought a wealth of opportunities for business lenders. However, the challenges arising from non-standardized data cannot be ignored. Transaction enrichment emerges as a game-changer in this context, helping lenders overcome these obstacles and harness the full potential of open banking. By streamlining the underwriting process, enabling faster lending decisions, and facilitating global expansion, transaction enrichment is set to play a crucial role in shaping the future of business lending.

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