Digital bank statements: sustenance for underwriters

By James Varga

21 April 2020

It would seem there is little that is not subject to change as a result of the current pandemic. I've lost count of the volume of articles that have stated that the world to which we will return following the crisis will have changed out of all recognition.

And while I tend to think that we will once again go back to commuting to offices, and meeting in person to discuss business, there are examples where I think change could occur. There are many inefficiencies and bad habits that we perhaps have never had the chance to resolve - until now.

And make no mistake, now is the time to be ensuring we obtain maximum operational efficiency. As custom wavers, employees are furloughed or sadly made redundant, stakeholders dither, now is the time to act.

For larger organisations particularly, we know that change can be a long, and sometimes arduous process.

And it is for this reason, and others, that we have seen the emergence of the fintech community in the UK. Rightly, the sector has been lauded as one of the shining lights in the UK business community, as fintech companies have become increasingly important to the financial sector.

At this critical time for everyone in the UK, it is right that fintech firms should once again look to take the lead in the development of solutions and products that can help both consumers and businesses.

To further advance the needs of UK businesses, it is also vital that large financial institutions embrace the advancements made by fintech firms and use them to help their own customers.

There are developments made by fintechs that could be implemented now with very little financial outlay or technical capability, that could in turn save thousands in time and resource. It is this low-hanging fruit that involve relatively little by way of commitment or expenditure, where I see the biggest gains being made during the current pandemic.

One example that we see as being critical to the continuation of banking services in the UK is the utilisation of bank account information in place of physical bank statements.

As we’ve ruminated on for many years, the current practice of assessing applicant’s physical bank statements is unsustainable. Indeed, we see little of value to recommend it.

This is not to say that the information contained within a bank statement is not of value – patently it is. What we advocate is of a more effective way of delivering this data to the people that need it, with the immediacy that is required.

Using digital bank statement information brings about a number of advantages for both the end user and the bank. For the consumer, it offers:

  • Far greater convenience, with information being sent to the corresponding institution virtually instantaneously
  • No need to hunt down, and post in physical bank statements
  • The ability to be accepted on a credit risk decision, and receive funds much faster than was available previously
  • Far better customer experience

For the financial institution, it offers:

  • Bank statement information arriving with the individual or department who need it within seconds of the applicant having completed the application
  • Confidence that because the information is delivered digitally, there is no possibility of statement tampering
  • With digital information being categorised and classified, statement information can be manipulated and understood easily

Having the data with the correct department within seconds of the application being made, with third party fraud having been all but eliminated results in enormous savings in time and resource. This vital resource can then be spent on other functions within the organisation. The applicant, meanwhile, receives a first-rate service as a decision on their credit risk application can be made much faster – and without the need to supply supporting paper-based bank statements.  

This is now possible across most geographical institutions, including the UK and Europe, courtesy of Open Banking.

The question that I am frequently asked in relation to Open Banking, is if digital bank statements are as good as I have outlined them to be, why are they not more widely used?

There are a growing number of fintechs across the globe that are capable of providing the raw data that can be used in a credit risk or affordability decision.

This is good. But for the recipient of the data, a huge amount of work must be developed behind the scenes to ensure that the data received is actionable and of value. The raw data itself provides very little information without an understanding of what the data represents.

What is required is the ability to provide this information, replete with insight of what this data represents. It is only by understanding income, affordability, gambling, loan stacking, creditworthiness and more that comprehensive credit risk decisions can be made, and the data becomes truly of value.

The current pandemic has changed the way that most of us work. In many instances, how we work will have indeed changed forever. It is important that we take this opportunity to stop doing things that are of limited value to us, and embrace new methods and ways of working that inspire us, save us time and resource, help us develop better connections, or provide other benefits.

At this particularly testing time, I offer the advice that we look at small steps that will provide us with immediate benefits.

In the fullness of time, bank data will prove to be revolutionary, changing the face of every sector, across industries, from B2B to B2C and across myriad use-cases.

The use of bank data to digitise a bank statement is one very small part of what Open Banking and bank data can provide for us. As we seek to make small improvements, however, that will improve the way that we do business, digital bank statements are one small step that can provide immediate succour to those making credit risk or underwriting decisions.

An important consideration here is the ability to begin consuming this data immediately. Should we have to wait for the culmination of big IT projects or months of methodology training, the impact – at this time of greatest need – will be limited.

What is required is for Open Banking providers (AISPs) to be able to integrate with, and have their customers up and running, with zero-integration, and delivering insights, in just a few days. This is how we will demonstrate the value of the insights being delivered.

The ability to make small changes that will have deep impact is of critical importance at this juncture in time. Financial institutions, with every other company, face their own challenges at this difficult time. The digitisation of paper-based bank statements, while a small step, can have a tremendously positive impact on those assessing credit risk decisions.

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