We interviewed Mike to hear his views on how Open Banking might be used to help assess affordability and the key challenges lenders face to implement Open Banking.

 

Q. Can you explain your role at HSBC?

I am currently the Head of Unsecured Credit Risk, responsible for the management of credit risk across all unsecured products i.e. cards, current accounts and loans. This role involves ensuring our credit risk policy and strategies deliver good outcomes for our customers and that our products provide sustainable and safe lending within HSBC UK’s risk appetite.

To achieve this, it’s essential we use all our available data to assess a customer’s affordability before lending. We use traditional forms of information, such as credit bureau information, internal bank account data, but we also use enhanced affordability data derived internally or externally to make our decisions.

Q. In the current environment, what are the main barriers consumers face when applying for credit, typically?

There are two main barriers:

1. The rising cost of living and base rate rises mean the level of affordability of a customer reduces and they will find it more challenging to access credit, as lenders have a responsibility to ensure their customers can afford to repay the loans they are providing for a given period. Are they making sure they adjust their expenditure to take account of these future risks to afford the lending we’re being asked to provide to them?
2. Balancing the expectation of a customer in terms of speed of decision versus providing sufficient information in their credit and affordability profile to support the lending. This is where automated sources of data, such as credit bureau and Open Banking, start to become essential, alongside the ability to develop and operate sophisticated models that assess and control both credit and affordability risk. The ability to do that is because of developments in our modelling processes. We’re using techniques, like Machine Learning, and we also have the computational ability to use transactional data.

Q. How are you using Open Banking data at HSBC to more accurately assess affordability?

Due to the wealth of information we already have on our existing customers at HSBC, Open Banking is used in a limited way to complement this information. Alongside credit bureau information, it is currently used in two areas: 

1. To support underwriters in verifying income as part of lending applications.
2. And to support operational processes within collections, to help customers with budget planning.

Where Open Banking will add value is around the margins. Further areas are under consideration to support niche areas of lending where our existing data sources are not sufficient, but this work is being prioritised for the future.

Q. What are the biggest challenges in implementing Open Banking data in an organisation such as yours? And how have you overcome these?

The challenges are the same as those experienced by many companies and include:

1. Integrating Open Banking seamlessly into, or alongside, your existing journeys and in a way that minimises friction, so that customers are more likely to take advantage of the benefits of Open Banking.
2. For an existing bank to ask one of their customers to connect to another bank for information has not yet been normalised, so it is something we need to work on with our customers.

As a result of these two points, it then comes down to prioritising use of our existing data and the improvements that can provide, versus the benefits of implementing Open Banking.

Q. Organisations are relying on self-declared customer information and solely on credit bureau data to make lending decisions. However, use of Open Banking data is also growing – so, what does this mean for the future of lending in the UK?

I think where existing customer information, combined with credit information, is available and sufficient for approving lending, then this will continue, as it does satisfy lending needs for the majority of the UK.

Where Open Banking and integrating other data sources, such as student loans, will help is around the margins, where a more detailed assessment is required. Those customers entering the credit market for the first time, such as young people who don’t have an established credit file, is where Open Banking may be an advantage.

This is where new-to-bank lenders will start to develop the process as their needs and business model will require it to succeed, and to make robust credit and affordability decisions.

Added data elements can be used in a positive way. We have the data, we just need to be able to pull it in and use it.