Open banking platform Tink warns that traditional lending models are broken and “no longer fit for purpose” in the current economic climate.
The WealthTech company has urged lenders to prioritise upgrading creditworthiness assessment models to ensure more accurate lending decisions.
It stated that as the economic crisis worsens, better decisions on lending are needed to protect and support consumers and businesses who might be struggling with affordability over the coming months, while reducing the risks to lenders from a potential new wave of defaults.
In a survey of financial executives, it found that 68% of UK lenders have tightened affordability criteria since the pandemic. However, there are still blind spots in credit assessments. As a result, Tink claims people have been denied access to borrowing unnecessarily.
It stated that 41% of people have been denied credit due to the inability to verify identity or legal status, and 35% have been denied due to the inability to access payment history. Furthermore, 33% of self-employed workers say their employment status has been an obstacle for them getting a mortgage, while 31% believe it has hampered their ability to obtain credit.
Tink stated that many people are being excluded from credit due to outdated and blinkered credit scoring models. It added that traditional credit checks means there is no robust way of protecting consumers if economic circumstances change and affordability becomes an issue.
Tink UK and IE Banking and lending director Tasha Chouhan said, “It’s clear many lenders still rely on traditional credit checks to determine eligibility for loans. There is no place for such models in our current economic climate, and the sooner this is recognised, the better the outcome will be for both lenders and consumers.
“New forward-looking models are drawing on open banking technology to provide a holistic picture of people’s finances. It’s vital to protect potentially at risk or vulnerable consumers from problem debt or default as the economic climate worsens. At the same time, it’s key to promoting financial inclusion, as people now more than ever need access to safe, affordable, and regulated borrowing options.”
A recent report from Tink stated that financial institutions across Europe are “betting big” on open banking payments.
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