Anna Maj, CEO of CreatLink, explores how data enrichment improves financial products, unlocking the potential of Open Banking data.
The promise of Open Banking to level the playing field for non-bank players as well as introduce more room for innovation to build better financial products, improve customer experience, and provide access to new financial services, has yet to demonstrate its full potential.
Data strategies built on Open Banking data can play an instrumental role in delivering on this promise. The integration and aggregation of Open Banking data is crucial for data enrichment, i.e., augmenting first-party data coming from internal sources with third-party data derived from external sources.
Here are some examples of how data enrichment can be applied in banking and payments:
Digital onboarding and KYC: data enrichment can be used to verify the identity of customers by cross-referencing the information provided with external data sources such as government databases or credit bureaus. Ensuring the accuracy of customer addresses can help reduce fraud and improve the delivery of statements and other communication.
Fraud prevention: data enrichment can be used to monitor transactions in real-time, identifying unusual patterns or potential fraud based on historical data and external risk indicators, plus analysing geolocation data from transaction records can help detect fraudulent activities.
Payment processing: data enrichment can be used to validate payment details, such as verifying bank account numbers or confirming the accuracy of IBANs for international payments. Improved data can also assist in evaluating the risk associated with different payment types, helping banks and payment providers make decisions on whether to allow or hold payments.
Merchant services: data enrichment can be used to assess the financial stability and reputation of merchants, through affordability checks, helping banks decide whether to offer payment processing services to them.
Loan origination: enriched data can be used by lenders to create improved credit scoring, taking into account a wider range of financial and non-financial factors. More and more lenders are using Open Banking data to make better credit decisions, as demonstrated by an alternative credit bureau or a credit rating agency: Credit Kudos.
Credit Kudos is a UK-based fintech specialising in credit scoring and lending solutions that was acquired by Apple (Apple Payments Services) in 2022. They have integrated with leading lenders and brokers, including Curve, LendInvest, and CarFinance 247.
Let’s take a closer look at how Credit Kudos leverages Open Banking data in credit scoring:
Data collection: Credit Kudos collects a wide range of financial data about individuals, including information about their income, spending habits, financial history, and credit-related activities. This data is gathered from various external sources, such as bank account transaction data, credit bureaus, and other financial institutions, with regular real-time updates.
Data enrichment: To improve the quality and depth of the data they collect, Credit Kudos employs data enrichment. They use third-party data providers, public records, and other relevant alternative sources to enrich their datasets.
Advanced analytics: Credit Kudos uses advanced analytics including machine learning algorithms to analyse the collected and enriched data. These algorithms are designed to identify patterns, trends, and behaviours that can provide insights into an individual's creditworthiness. They may assess data points such as income stability, financial responsibility, and credit risk. The predictive insights are built by combining transaction and loan outcome data.
Credit scoring: Based on the analysis of the enriched data, Credit Kudos generates credit scores and reports for individuals. These scores provide lenders with a more holistic view of a borrower's financial situation, going beyond traditional credit scores, potentially increasing access to credit for underserved individuals. The company provides better: more accurate credit insights and scores resulting in better: richer and faster credit decisions.
CarFinance 247: in cooperation with Credit Kudos a leading online car financing broker in the UK has introduced a new KYC check process, which significantly reduced document collection time from 2 hours to 10 seconds. The new KYC approach alongside the upgraded credit scoring not only improved the customer experience but also resulted in increasing the customer base by 1500+ underserved individuals that accounted for 5% of previously declined*.
Credit Kudos proves how the data enrichment strategy can successfully be applied to create a more comprehensive and accurate picture of an individual's financial situation. This enriched data is used to provide lenders with a better understanding of an individual's creditworthiness, potentially leading to more inclusive and informed lending decisions. By using Open Banking and leveraging external data sources, improved with analytical tools, financial services providers can offer more efficient, affordable, and secure credit and payment products to their customers.
Data enrichment in banking and payments is all about making more informed decisions, reducing risk as well as improving customer experience.
* Sources & References: Credit Kudos, Open Finance World
This editorial piece was first published in the Open Finance Report 2023. We encourage you to download the report and find out the latest trends and developments in the world of Open Banking and Open Finance, as the road to Open Data continues.
Fintech Leader and Strategic Advisor. Founder & CEO of CreatLink. Expert at the European Innovation Council. Anna brings 20+ years of experience (including C-level and NED roles) in driving payment and banking innovation in Europe and the Middle East.
CreatLink is a dynamic fintech and innovation advisory firm specialising in payments consulting and investment advisory. The company fosters fintech knowledge sharing and thought leadership to drive innovation and sustainable financial solutions.
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