Open Banking: The Key to Reducing Fraud in Consumer Loans

23 / 01 / 2023

Open banking is slowly but surely gaining pace across Europe as more consumers become familiar with fintech products and new financial services, and banks (often in fits and starts) continue to integrate these capabilities into their apps, platforms and other banking services. This slow-but-steady adoption by consumers is good news in the lending space. Not only is the accuracy of predicting defaults using open banking credit checking well established, but open banking is enabling lenders to kill another two birds with the same stone: fraud prevention and ID proofing.

young business woman working on a tablet at an open environment

As the cost-of-living crisis puts pressure on household budgets, demand for some forms of credit will experience an increase. However, in the new macro-economic context, lenders have many risks to manage: interest rates (and therefore borrowing costs) are rising, and a recession may lead to higher unemployment. Consumers expect a simple and fast user journey when they apply for credit, and they are also turning to new forms of credit (such as Buy Now Pay Later) which may not show up on a consumer’s credit history or a traditional bureau credit report. The risk of fraud is ever present in the lending space, and this too must be managed in a financial sector that is increasingly digital and real-time. It is a major challenge to  manage all of these risks effectively while  ensuring a fast, enjoyable customer journey, and a speedy time-to-yes.

 Open banking holds many of the answers:

  1. In order to share their open banking data, a user must perform strong customer authentication (SCA), which involves at least two independent forms of verification (e.g. a fingerprint and a PIN) - providing a very high level of assurance that the user applying is the owner of the financial information. The AIS (Account Information Services) transaction also allows the lender to receive a confirmed IBAN for the applicant, sent directly from the applicant's bank.
  2. This bank account data (balances & transaction data) can then also be analysed, not only in terms of creditworthiness and financial affordability, but also for signs of fraud and suspicious transactions. Additionally the data can be checked to determine if the account shared with the lender is indeed the applicant’s daily bank account, or some other account being used to obscure their true financial health.
  3. Another advantage of open banking data is that it comes directly from the applicant's bank - it is not self-reported and cannot be tampered with by the applicant. This data does not have to be manually gathered by credit analysts and open banking data, by its very nature, does not contain errors. Unlike credit bureau data it is always up to date and there is no missing data due to human error or reporting failures.

Given these factors it is no surprise that many lenders, including fintechs, traditional financial institutions & banks (and even a few traditional credit reference agencies), are turning to open banking as a key risk management tool.
It’s also for these reasons that Worldline launched Credit Insight, a highly accurate creditworthiness checking product that leverages our large TPP network, connected to over 3500 banks. You can also discover our other open banking products and services, and our open banking APIs.

Open banking gives lenders access to real-time financial data, not only helping with creditworthiness assessments but also identifying fraud risks. The use of strong customer authentication (SCA) ensures that the data being accessed is accurate and belongs to the applicant, providing a high level of certainty about the identity of the borrower. Open banking data is not self-reported and is always up to date, making it more reliable than credit bureau data, which may contain errors or be out of date. Open banking can help lenders to make more informed lending decisions and to better manage risk, while also providing a fast and convenient customer journey.

For more information download our Credit Insight product factsheet.

Read our Expert Paper: Consumer Finance: The Transformative Impact of Open Banking & Open Finance.


Gavin Copeland

Gavin Copeland

Gavin has been working at Worldline since 2019. He initially joined Worldline as a software development Project Manager, working on international projects within the MTS division. Interested in innovation, new forms of payment and financial inclusion Gavin now works as a Product Manager for Digital services where he develops Digital Banking and Open Banking products which help Worldline’s customers tackle these subjects.