Traditional financial institutions have always been resistant to change; after all, managing and reducing risk is essential to running a successful bank. After decades of building processes to minimise risk, innovative digital technologies, like open banking, often face resistance from traditional operations.
This is a situation, James Varga, CEO at DirectID, understands well. As the founder of DirectID, James has worked within the FinTech world for almost a decade helping businesses like lenders create exceptional customer experiences by removing friction caused during the application process by current, traditional challenges of risk, compliance, fraud and regulation.
Trying to convince corporate banks and lenders to adopt technology and digital innovation in a highly risk-averse industry is certainly not an easy task. Processes created to avoid risk become increasingly more complex over time till innovation is nearly impossible.
Yet, unprecedented times call for unique solutions. So could COVID-19 be creating the radical culture change needed to extend the reach of open banking further?
Who Are DirectID?
DirectID has been at the forefront of open banking and using bank data to help assess affordability and credit risk.
James Varga founded the company as he wanted to challenge the broken status quo and create a better, easier way for people to take control of and organise their finances. Rather than approaching bank customers from a transaction-based perspective, like most traditional financial players, DirectID seeks to achieve a balance between improving customers’ experiences and removing common banking barriers.
As the world increasingly moves transactions online, customers have come to expect and want instant access. James argues that convenience is the only motivating factor for customers; it underpins everything we do and must be reflected in banking processes.
How do you provide customers with convenience in a purely digital world? How do you remove business barriers to deliver a better user experience to customers?
Overcoming Initial Hesitations to Open Banking
James took a moment during our interview to reflect on how much resistance and friction they faced when initially presenting the idea. Traditional financial service players closed doors on DirectID and laughed them out of rooms, claiming that “customers would never willingly provide their banking data.”
Not only did DirectID need to overcome these hesitations, but they also needed to overcome compliance challenges which would prove to be one of their biggest barriers.
James explained that British and European banks are very sensitive to regulators. Without the support of banking regulators, it would be difficult, if not impossible, to create the required processes. DirectID needed to develop an industry movement supported by regulators to achieve actual change.
And, thus, the open banking movement was born.
James Varga has been at the forefront of the open banking movement since it’s very beginning, working tirelessly to raise awareness and create strategies with the government. After four to five years of trying to build an industry around open banking, the tide finally started to turn once regulators began to support the movement and encourage lenders to achieve better affordability.
How COVID-19 is Changing the World of Open Banking
With every challenge comes new opportunities and this certainly holds true for the current pandemic. Businesses must forego traditional ways of working and consider different solutions for supporting customers.
Now that the conventional systems and processes aren’t available, banks are quickly having to step outside the status quo and embrace more innovative solutions.
Open Banking Use Cases in COVID-19
- Customer onboarding. Open banking makes it possible for banks to onboard new customers within minutes rather than weeks or months, which means banks can provide quicker support to customers in need.
- Portfolio management. It’s nearly impossible for banks to assess credit risk within an existing portfolio as lenders lack information about how COVID has impacted borrowers. Open banking gives accurate insights to provide better portfolio management and help lenders evaluate the overall risk of their product lines.
- Collection and recoveries. Given the current market conditions, it’s difficult for lenders to know which customers are at risk of defaulting and how they can help those customers create a plan to get through this situation. With up-to-date information, lenders have a much better chance of identifying and supporting at-risk customers.
Creating a Brighter Tomorrow with Open Banking
To provide support, especially during times of crisis, leaders need real-time data about what’s happening in people’s lives today. Otherwise, they’re only operating on assumptions, which can easily have harmful consequences.
Open Banking provides a way forward towards a brighter future, where decisions are made based on current circumstances and customers and financial institutions can work together to achieve the best outcome.
Written by Kathryn Strachan, Everly Journalist & Managing Director at Copy House. When Kathryn’s not creating articles for Everly, she runs Edinburgh-based content marketing agency Copy House. Copy House specialises in helping FinTech founders bring their insights to life with SEO optimised websites and thought-leadership content.