Consumer lending made easy through Open Banking

Loans and credit are some of the first things that come to mind when we think about banks. And rightfully so! Consumer lending is one of the basic financial services a bank is expected to provide and is indeed a big part of banking portfolios around the world. And in recent years, not only have more players such as lending fintechs entered the space, but they are right alongside banks in making lending ever more seamless, profitable, and efficient.

Technology is playing a big part in this transformation, of course. Digital lending is replacing conventional, paperwork-riddled processes at a rapid pace. Banks and fintechs are now leveraging big data, A.I., and best of all, open banking, to streamline the customer lending journey and make access to credit more inclusive.


Growth in consumer lending in the GCC

A streamlined digital journey combined with a rising need for credit has resulted in a meteoric rise in consumer lending in GCC economies recently. Take Saudi Arabia, for example. Bank lending in the Kingdom amounted to 2,266 billion Saudi Riyals in 2022, up by 1.15% YoY. In the first half of 2022 alone, consumer loans from Saudi commercial banks rose by 13% to 445.8 billion Saudi Riyals. And we are seeing similar trends in other major markets as well. In Bahrain, personal loans as a percentage of GDP had increased to 38.6% by June 2022.

What’s even better is that credit is also becoming much more accessible and inclusive in these countries. For example, 32.4% and 22.5% of the population segment aged 15 years or older* borrowed from a financial institution in Saudi Arabia and the UAE in 2021, respectively. In the MENA region as a whole, the figure stands at 15.3%. There’s a lot of potential for growth and inclusivity in the lending space that banks and fintechs are ready to tap.

And open banking is the tool that will get them there. Banks and fintechs are already using it globally to extend essential credit faster and more seamlessly to more people and businesses, ultimately boosting economic growth. And if you ask us, we’ll see this trend accelerate as open banking adoption increases in the region. MENA governments such as the UAE, Egypt, and Oman are already preparing to join Bahrain and Saudi Arabia in launching their own open banking regulations.

But, you must be wondering, how exactly does open banking streamline the lending process to make it hassle-free for customers? Let’s dive into that…


How has open banking changed the lending landscape?

Before open banking, the credit application process for consumers was quite lengthy. It was mundane, required a lot of manual paperwork, took a lot of time, and was a challenge for customers. Here are 3 key conventional barriers that made the lending process cumbersome:

Limited credit history or bad credit

Customers with limited or no formal banking history, referred to as underbanked or thin file customers, face challenges in accessing credit. Lenders generally rely on credit history to evaluate a borrower’s risk profile and determine loan eligibility and interest rates. These customers in turn face difficulties when applying for loans, which often require a robust credit history for approval.

Lack of documentation

A conventional loan application requires a thick bundle of documents, ranging from proof of income and residence to asset ownership documents, past loan applications, and more. Some customers find it challenging or costly to provide the necessary paperwork and therefore, are unable to access credit from a bank. Others may simply not be willing to go through the hassle.

Lengthy timeframes

The conventional loan application can take anywhere from a few days to a few weeks or even a few months to process depending on the amount of information provided to the lender at the start and the lender’s internal verification and approval process.

But no more! Open banking has essentially eliminated the need for physical documentation. Instead, it provides lenders with access to an abundance of data that can be used to gauge the financial history and affordability of customers. And since open banking APIs facilitate data transfers instantly and seamlessly, banks and fintechs are able to lend within minutes instead of days or weeks.

To understand exactly how open banking resolves key pain points and ensures a smooth lending process for the customer, let’s explore the open banking-enabled lending journey…

The new consumer lending process

Here’s how open banking transforms the lending journey for the customer…

Stage 1: Offering customers tailored and personalised loans

Financial services customers traditionally faced a one-size-fits-all approach, limiting their access to credit that truly matched their financial situation. Open banking empowers customers by offering more tailored and personalized loan options that accurately align with their financial circumstances. And with aggregated data accessed through open banking, lenders are learning about customer behaviour and needs first, and personalising solutions accordingly.

That’s good news for customers because they get to pick and choose the lending product that best fits their needs and behaviour profile from an extended variety of options from different providers. With open banking, the lending experience becomes more customer-centric, empowering individuals to make informed choices and access the credit they truly need.

Stage 2: Ensuring a hassle-free application experience

Once they’ve decided and applied for the loan, open banking ensures that customers have a hassle-free experience with faster loan approvals and less costs!

How? Simple…

With open banking, customers are able to make the necessary personal and financial information, including employment details, personal identification, proof of income, bank statements, etc. available to lenders almost instantly. All they need to do is provide consent to open banking, and the lender can access all of their KYC data and financial activity from across the banking ecosystem. All aggregated in one place, the data is ready to be processed within minutes. Plus, this data can be made available to non-banking lenders, providing more options to the customer. Bottom line is, the customer no longer needs to deal with manual paperwork submissions and lengthy applications.

Stage 3: Improving customer credit-worthiness and process transparency

Open banking essentially makes each of the 5 Cs of credit, i.e., character, capacity, capital, collateral, and conditions, easier to assess. It provides lenders with real-time aggregated financial data, allowing them to make more accurate lending decisions. This leads to lower interest rates on loans, improved credit scores, and greater financial flexibility for the borrowing customer.

But that’s not all. Open banking also increases process transparency for customers. Customers know exactly what data lenders will use and can anticipate their decision.

Stage 4: Final Decision – What do customers end up with when all is said and done?

Equipped with an abundance of data and insights, lenders using open banking are able to provide customers with more accurate lending decisions within minutes. Ultimately, the customer enjoys a seamless borrowing journey that is more transparent, faster, inclusive, and automated.

And it’s not just a major win for customers. Open banking is also highly beneficial for lenders if you think about it! They are able to drastically reduce data processing costs and resources, improve loan processing and approval times, and stand out with personalised lending products that are attractive to the customer.

An enhanced customer lending experience is but one connection away…

To leverage open banking income verification to improve customer lending, all MENA banks and fintechs have to do is connect with our TG Income Verification solution. One connection and you can unlock:

  • Real-time and reliable access to data to power credit decisions
  • Improved conversion rates and higher revenues

and provide your customers with:

  • More personalised rates and lending options
  • More streamlined application processes without manual documentation
  • Enhanced/accurate credit history and boosted creditworthiness
  • Faster and more transparent approval process

*World Bank Global Findex. Parameters: ‘UAE’ & ‘Saudi Arabia’. ‘Borrowed Any Money’, ‘Borrowed Money from a Formal Institution’. 2021/2022.

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