When managing credit risk, many lenders ask, “Why should I use open banking? I already rely on credit bureau data.” It’s a valid question.
Credit bureaus have long been the backbone of credit decisioning. They offer valuable historical data that has helped shape lending practices. From assessing payment history to evaluating how borrowers have handled credit over time, the data provided by credit bureaus has guided lending decisions effectively. But today, the financial playing field has evolved, and lending requires a more dynamic approach to assess creditworthiness effectively.
This is where enriched bank transactional data steps in. Far from replacing credit bureaus, open banking data provides customer financial insights that are based on behaviour now, not just in the past.
While historical data is critical, lenders need real-time insights to stay ahead in today’s fast-paced financial environment. Open banking provides lenders with a real-time view of a customer's finances. In turn, this helps risk assessors make better decisions.
1. Real-time data vs historical snapshots
Credit bureaus give a helpful view of a borrower's credit history. However, this data can be delayed. Sometimes, it takes up to 60 days for financial institutions to report it. This lag can pose significant challenges, especially when assessing borrowers whose financial situations are rapidly changing.
For credit risk officers and underwriters, it’s essentially a blind spot. It makes it difficult to predict how a customer is likely to perform on a loan.
Data acquired through open banking allows lenders to view real-time financial insights. Transaction data is up to date by the minute, so lenders can build a clear picture of a borrower’s current financial health. Whether it’s a sudden income drop, increased expenses, or a new financial commitment, you’ll know about it now—not two months down the line. This real-time visibility enables you to make faster, more informed lending decisions, reducing the risk of defaults that come from outdated data.
The real benefit lies in the combination of both data sources. Credit bureaus can offer historical context, showing long-term borrowing behaviour, while Atto provides the immediate, real-time context needed to understand a borrower’s present risk profile.
2. Income verification you can trust
Income verification is a critical component of every credit risk assessment. Credit bureaus typically rely on self-reported data or employer-reported income, which can be outdated or inaccurate. This is especially problematic for those who have recently changed jobs, switched to gig work, or faced financial disruption.
Atto’s income verification categorises income data from verified sources—employers, bank accounts, benefits, gig work—eliminating the guesswork. By offering accurate, up-to-date income data, lending decisions are based on the entire picture, not just a payslip.
This is particularly beneficial for borrowers with non-traditional income sources, such as freelancers or zero-hour contractors, whose financial patterns may not be captured accurately by credit bureaus.
Having real-time income data offers lenders a clearer and more trustworthy assessment of affordability. It enables them to see the actual cash flow patterns, making lending decisions not just based on credit history, but on the borrower’s current financial health.
For mortgage providers, auto lenders, or credit card companies, this means reduced reliance on potentially misleading self-reported income and improved underwriting accuracy.
3. Holistic financial health: more than just credit scores
Credit bureaus excel at creating credit scores, but these scores don’t always tell the full story. While credit scores reflect an individual’s borrowing behaviour, they may not capture other important aspects of a person’s financial health, such as spending habits or non-credit obligations.
Today, many borrowers engage in financial behaviour that traditional bureaus can’t track—such as Buy Now, Pay Later (BNPL) schemes, or frequent gambling transactions, which can significantly impact affordability.
Open banking data provides a more complete view of a borrower’s financial life. Atto’s holistic affordability analysis tracks not only income but also outgoings in real time, giving a complete picture of financial health. This includes critical but often overlooked behaviours like BNPL obligations and other non-credit commitments, which might not appear on a traditional credit report but could indicate a higher risk of default.
With open banking, lenders can assess not only how much debt a borrower is carrying but also how they manage their day-to-day finances. This allows for better identification of potential risks.
4. Early detection of financial distress
The earlier lenders can identify financial distress, the better they can mitigate risk.
Credit bureaus operate on historical data, which means they’re often slow to detect emerging financial problems until it’s too late. By the time a bureau flags distress, the borrower may already be in arrears.
Atto’s proactive monitoring capabilities help lenders identify signs of financial distress as soon as they arise. Real-time data gives you the chance to adjust loan terms, increase scrutiny, or offer support before the borrower reaches a critical point. This early detection can prevent defaults, reducing your risk exposure and helping borrowers stay on track.
5. Inclusive lending for the modern world
Traditional credit scoring systems can exclude people who are new to credit, recently arrived in a country, or working in the gig economy. Credit bureaus often depend on long-established credit histories, making it hard for individuals with limited or no credit footprint to access financial services.
Categorised bank data ensures a more inclusive financial assessment. By focusing on actual transaction data and current financial behaviour, lenders can accurately assess individuals without relying solely on credit history. This creates more opportunities to lend responsibly to individuals who might otherwise be overlooked by traditional credit bureau models, supporting financial inclusion while minimising risk.
Conclusion: a partnership for smarter lending
Credit bureaus and open banking providers aren’t in competition; they are complementary tools that, when used together, give lenders a more comprehensive understanding of credit risk. Credit bureaus provide valuable historical context, while Atto offers real-time insights and a complete picture of financial health.
In the modern era of gig work and freelance earning, where income patterns shift quickly and spending habits evolve overnight, real-time data is the key to reducing risk and improving lending outcomes. Atto’s open banking tools ensure that every lender can stay ahead, making decisions on fresh, accurate data that completes the data currently available from the bureaus.
By combining Atto’s real-time insights with the trusted data of credit bureaus, lenders can get the full spectrum of financial information—past, present, and future.
Ready to enhance your lending decisions with real-time insights? Discover how Atto’s open banking tools can complement your credit bureau data and minimise credit risk. Book a demo today to learn more.
