Open banking enables financial service providers and users to access real-time comprehensive data and insights, allowing them to make informed financial decisions. A major use case for this is lending. Consequently, for lending SaaS providers like Lendsqr, their ability to successfully optimize the loan process, improve underwriting and decrease lenders’ credit risk depends on open banking.
Lendsqr is a Lending-as-a-Service fintech that provides lenders with the technology and data to run their lending business and automate the entire loan process. Lendsqr is helping lenders launch and scale their lending proposition across multiple channels in the shortest time and at the lowest cost possible. Lenders can even sign up and get their own branded web app, powered by Lendsqr, for free.
Lendsqr partners with a number of the top data providers in Nigeria, and through open banking technology, extends the capability of analyzing borrowers’ income, balance and bank statement data to lenders to make better quality lending decisions.
Defining a successful lending business
As nuanced as lending is, the truth of it is that lenders need to do just two things right: know who to give loans to and how to get paid on time. The rest, as they say, are semantics. As simple as these two things may sound, they are incredibly difficult to pull off, even for the largest lenders.
On one hand, Nigerian lenders use tons of data to make decisions, unfortunately, most of them are proxies or hack jobs. For instance, lenders depend on fintechs like Mono and Okra (both are Open Banking members) for data. However, this doesn’t scale because the data are expensive, of poor quality, and sometimes, just not available. This poses a significant obstacle, given that, to make good decisions, lenders want to see transaction history for borrowers before giving out loans. Despite the growing acceptance of the merit of using bank statements to aid lending decisions, there is no standard or standardized way of getting this data.
On the other hand, getting paid for loans is even more important. Today, lenders rely a lot on loan repayment via debit cards, and to a small extent, direct debit. That in itself is a landmine. Badly behaved borrowers usually cancel their cards to avoid repayment. Other common issues that may arise with card payments include transactions getting flagged as fraud, throttling and failed payments.
Open banking is the best solution for data and payments
Open banking solves these two issues in simple ways. With open banking, a customer would grant access to their accounts with full and explicit consent. Next, lenders can use this access granted to them to view customers’ transaction data in its purest and most assured form. With this, lenders can proceed to make their underwriting decisions with confidence.
Similarly, when the loan is due, lenders can use the same access to check the customer’s account balance and take as much as is available until the loan is repaid in full. Lenders can set up recurring payments for loan products and release borrowers from the burden of worrying about repaying their loans when due. Another benefit to the adoption of open banking for loan collection is the minimized risk for fraud and delinquency. With the full view of a borrower’s account information and their ability to repay their loans, it becomes quite difficult, near impossible, for borrowers to intentionally default on loans and move their money around; hiding it in accounts lenders may not have access to. Using open APIs presents an effective solution to such harmful trickery.
Open banking in Nigeria is still in its development stages. However, even when open banking becomes fully available in Nigeria, building the tech would be incredibly expensive, time consuming, and difficult.
This is where Lendsqr comes in.
The value Lendsqr delivers through open banking
As the smartest lending-as-a-service fintech in Africa (LaaS), Lendsqr has built an incredible platform to help lenders launch and scale their lending at the click of a button – reaching millions of borrowers effortlessly. The LaaS company has built tech that helps lenders make smart decisions and collect loans with ease.
Lendsqr has backed Open Banking in Nigeria – founded by industry leaders – since 2018. “With open banking, our lenders would have better underwriting and superior loan repayment. This in turn reduces their NPL, which means their risk premium would be lower and their loans more affordable to everyone. It also means Lendsqr is able to fulfill its vision of ensuring that every African has access to the loans they need to build their dreams”, says Adedeji Olowe, founder of Lendsqr.
Lendsqr provides a successful use case for open banking in Nigeria and their continued efforts to make the technology available to others to deliver more innovative financial products makes them a player to look out for.
For enquiries about further use cases for open banking, you can reach out to [email protected].