The future of lending: open banking and AI in smarter credit decisions
The lending industry is undergoing a significant transformation, driven by open banking and artificial intelligence (AI). These advancements are reshaping how lenders assess risk, pre-empt defaults and expand access to credit. As technology streamlines loan application processes, brokers must also adapt to an increasingly digital environment.
Here, we explore how open banking and AI are shaping a more efficient, inclusive and intelligent lending ecosystem.
Using open banking to mitigate customer defaults
Traditional lending models have long relied on historical credit data and static financial assessments, which often fail to reflect real-time changes in a borrower’s financial situation. Open banking enables lenders to access live transactional data with customer consent. This richer dataset provides a more accurate picture of a borrower’s financial health, allowing lenders to proactively manage risk.
By integrating AI-driven models with open banking data, lenders can identify early indicators of financial distress, such as irregular income deposits, increasing debt-to-income ratios or fluctuating expenditure patterns. This insight allows financial institutions to implement early intervention strategies, including flexible repayment options and financial wellbeing support. Such a proactive approach benefits both customers, by helping them avoid default, and lenders, by reducing the level of non-performing loans.
The changing role of brokers in a digital lending landscape
Traditionally, brokers have played a crucial role in navigating the complexities of lending, providing tailored advice and securing optimal financing solutions for clients. A degree of friction in the process has historically allowed brokers to demonstrate their expertise. However, with open banking and AI-driven automation streamlining credit assessments and accelerating approvals, the lending experience is becoming increasingly frictionless.
Rather than seeing this evolution as a threat, brokers have an opportunity to enhance their value proposition. By leveraging technology, brokers can offer deeper market insight, personalised financial guidance and expertise in regulatory considerations. The human element remains critical, particularly for complex borrowing scenarios where digital automation alone will not suffice. Brokers who embrace these changes and position themselves as trusted advisers will continue to play an essential role in the lending ecosystem.
Broadening access to credit for under-served markets
Historically, individuals with non-traditional income streams or limited credit histories have faced significant barriers in accessing finance.
Open banking and AI allow lenders to assess creditworthiness using a wider range of data sources, including real-time spending behaviour, rental payment histories and utility bills. These alternative data points provide a more comprehensive view of an applicant’s financial profile, enabling fairer and more informed lending decisions. This evolution is particularly beneficial for gig economy workers, freelancers and those who have been underserved by traditional credit models.
Moreover, the rise of embedded finance and alternative lending solutions is increasing accessibility to credit, with lending services being integrated into payroll platforms, e-commerce sites and financial wellness applications. By embracing these developments, lenders can extend responsible credit solutions to a broader customer base, supporting financial inclusion and long-term economic stability.
Conclusion
The combination of open banking and AI presents a significant opportunity for the lending sector to enhance decision-making, improve risk management and promote financial inclusion. Lenders who leverage real-time data and predictive analytics will be better positioned to pre-empt defaults, automate processes and meet the evolving needs of borrowers.
By embracing these technological advancements, the lending industry can drive better outcomes for both businesses and consumers, reinforcing trust and resilience in the financial system. Whilst these changes should lead to improved customer experiences, the lending companies also have to ensure that their privileged access to personal data is kept secure. For more information on this, reach out to our experts within the financial services team below.
