Open banking and how it affects your personal loan application


Australia’s banking industry recently introduced ‘open banking’, a new style of banking that puts customers in control of their data.

Whether you’re looking for a new home loan, personal loan, or credit card — or looking to refinance — open banking should make it easier to find better deals between banks.

First of all, what is open banking?

Open banking gives Australian customers control over their banking information. It lets you ask your current bank to share your data, such as your transaction or savings account information, with other banks and lenders whenever you want.

Ultimately, you are able to tell where your data is going instead of your bank controlling it. This makes it easier for you to compare offers between banks and switch to more competitive banking products if you wish.

However, open banking is not yet in its complete form. Here is a breakdown:

  • From July 1, 2020 the big four customers can advise their banks to share their credit card, debit card, deposit account and transaction account data under the Consumer Data Right (CDR).
  • From November 2020 Australian customers can ask banks to share their mortgage and personal loan data.
  • From February 2021 customers other than the big four can request to share their product, account and transaction data for home lending products.
  • From July 2021 all Australian banks must provide access to customer products, accounts and transaction data for personal loans and other banking products.

How Open Banking Affects Personal Loan Applications

When you approach a personal lender outside of your current bank, they’re likely to want to see more than your credit report.

Previously, customers could be required to provide potential lenders with their bank login details, allowing them to review things like transaction history.

Mozo money expert Peter Marshall said this was a concern for many Australian consumers. He says open banking is a safer option.

“I think the biggest advantage [of open banking] is the security issue,” says Marshall. “More and more lenders want to look at your bank account to see your transactions and verify that you get paid what you say you get paid, and that you don’t have large regular expenses that you may not have. not mentioned on your application.”

He explains that it’s about lenders being able to do better due diligence on your request without potentially compromising your banking login details.

Will open banking determine the interest rate I get?

With the growing popularity of risk-based pricing and personalized interest rates among Australian lenders, open banking offers a clearer picture.

“Risk-based pricing can be as simple as looking at your credit score, but it can also involve other factors such as your spending habits that would be more apparent by giving someone full access to the your transaction history,” says Marshall.

But these ratings aren’t for lenders who tell you off and blame you for spending too much on online purchases. Rather, it looks at your big picture.

“It helps the bank make a more informed assessment of your living expenses, more than flagging specific transactions,” Marshall says.

Audrey Neale, digital marketing manager at online personal lender Wisr, says the company’s risk-based pricing model takes into account several factors, including credit score.

“Wisr’s credit assessment process establishes a credit risk profile for each applicant. The credit risk profile is used to determine the tranche allocated to the applicant and the interest rate offered,” she explains.

“If you have demonstrated good financial behavior and have a good credit score, it can pay off with a favorable rate. If you have a lower credit rating and meet our loan criteria, you will still get a fair deal and will not receive any ongoing repayments, prepayments or exit fees.

Is open banking safe?

Essentially, open banking is designed to give you control over your banking data, so you can select who has access and who does not.

“You still have to register, you still have to give very specific permissions, it’s very tightly controlled to minimize the risk of someone ending up with your information when they shouldn’t have it,” Marshall says.

“There is only one accredited third-party data recipient at present and they have been working on it from the start. They’ve done a lot of work to make sure people can trust him.

RELATED ARTICLE: How a risk-based personal loan could benefit you

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