As the cost-of-living crisis continues to severely affect people’s expenditures and way of life in the UK, lending businesses have had to adapt to better support consumers.
Open banking platform Tink has urged lenders to prioritise upgrading their assessment models as a result of their research finding 50% of lending firms are not using technology to generate a credit score based on bank account data.
Tink has described the current lending models as “broken” during this economic climate and calls upon lenders to implement an affordability assessment model that will create fairer and better lending processes.
Due to the current cost-of-living crisis, Tink’s research details that more stringent affordability assessments must take over from the more traditional functions of models before.
During its survey of financial executives, the open banking firm found 68% of UK lenders have tightened affordability criteria since the pandemic, but blind spots still exist in their credit assessments, resulting in people being denied access to borrowing unnecessarily.
UK lenders state that some of the main reasons that people are denied credit include the inability to verify identity or legal status (41%) or the inability to access payment history (35%).
Furthermore, 50% of lenders are not using technology to generate a credit score based on transaction data, whilst 35% of firms are not using it to assess expenses and overall affordability.
However, Tink has found encouraging signs, revealing a “growing appetite to embrace open banking powered technologies”, as 41% plan to adopt digital solutions for data-driven credit scoring.
Tasha Chouhan, UK & IE Banking and Lending Director at Tink, commented: “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.”