REVIEW
TECHNOLOGY
Open banking a work in progress Steve Carruthers head of business development, Iress
T
he phrase “less is more” became synonymous with the early twentieth-century Bauhaus architect and designer Mies van der Rohe. In three words he encapsulated the central ethic of modernism – the idea that true beauty is what remains when every unnecessary adornment has been stripped away. This sentiment holds good today in many walks of life, and yet in the world of technology, it is rarely uttered. The most seismic change in our generation has been the dawn and evolution of the internet. It has fundamentally and irreversibly changed our lives – and it’s always about more. The majority would argue this technology revolution has improved our lives – and it undeniably has. But nearly all of us would also admit that’s not all there is to it. The proliferation of information facilitated by the web, social media, cloud computing, and, imminently, the metaverse is incomprehensible to the human brain. While computers haven’t got to the stage of harvesting humans to power their inorganic world (yet), I am not kidding when I talk about this. Technology is so often hailed as the answer to everything. If it’s hard to get – tech’ll fix it. If it’s impossible to understand – tech’ll translate it. If it takes too long – tech’ll speed it up. Technology will do all of these things, and they are, more often than not, to our benefit. But van der Rohe had a point when he said less is more. The advantage of more information should be that it makes us better-equipped to make informed and therefore responsible
16
MORTGAGE INTRODUCER AUGUST 2022
decisions. But there comes a point when it is impossible to judge rationally based on all the facts – there is too much information, there are too many facts, and there is not enough knowledge to interpret it all sensibly. Sometimes I wonder just how much data there is in the world now and what proportion of it is actually used. Which brings me to mortgage lending. In our own world, the mortgage market, open banking has been heralded by many as the ultimate solution to all problems financial. The answer to the ultimate question of life, the universe, and everything is 42, if you will. I’m not such a Luddite that I would argue open banking hasn’t improved things for both customers and businesses in the years since it first came in. It has. Savings habits facilitated by apps connecting via API to customer current accounts and credit cards to allow spending round-ups to be swept into an investment or savings account are a wonder. Linking cloud accounting software to your business banking and pulling in tax calculations has probably averted several hundred thousand heart attacks. But open banking is not a panacea. How we use information is the defining factor in whether its use is a help or hindrance. When it comes to assessing borrowers’ affordability, I am wary of blindly believing that total visibility of a person’s finances is actually terribly helpful. For lenders it means vastly more information to consider – information that, once received, they must consider. For borrowers it means absolutely no room for imperfect financial behaviour or complex income. Anyone who’s had emotional, familial, social, educational, romantic, or health ups and downs in their lives will tell you that it affects financial behaviour. But so does experience. Sometimes the past isn’t a reliable guide to the future. So said
someone wise, anyway. Predictive behavioural analytics notwithstanding, I still question whether data crunching can always rival human judgement when it comes to nuance and individuals. For lenders, the degree to which underwriting integrates and relies on open banking frameworks and the 360-degree visibility of a customer’s financial circumstances will be a pressing consideration. As with all decisions, I would tend toward the idea that the answer depends. The aggregation of big data to inform analytics that can then be applied to average customer types is usually helpful. Assessing one person’s data – or one data point from a median behavioural point of view – is probably less helpful. This is especially true for anyone whose risk presents as even a moderate outlier. Lenders understand the right questions to ask when determining whether a borrower is a reliable prospect. Introducing vastly more information into this assessment might sound like it will help deliver better lending decisions and therefore consumer outcomes. But in fact, it might just muddy the waters and leave lenders at a loss as to how to make a sensible and responsible judgement that results in the borrower being approved, the home being bought, and – 99.9 times out of 100 – the loan being repaid. Open banking is clearly not a panacea, but very much a work in progress. It needs to enable lending – not prevent it – and part of that is lenders knowing what issues and bits of the mortgage process it fixes for them. Discovering more about individuals at face value must be a good thing, but it depends on what you find out, and then what you decide to do (if anything) about it. Is the mortgage process ready for much more complexity? For many lenders, there are more pressing issues to address. M I www.mortgageintroducer.com
