Saturday, June 15, 2024

EXCLUSIVE: “Unlocking the New Economy” – Tasha Chouhan, Tink in ‘The Fintech Magazine’

With their customers facing not one but two existential threats, banks need to seize the open banking moment and drive real change in 2023, says Tink’s Tasha Chouhan

The world is caught between a rock and a hard place. Facing a global economic slowdown as well as rapidly accelerating climate change, we need to alter the way we think and act to avoid worsening the situation further. Largely in response to the soaring energy prices that were driving inflation, central banks in the US, UK and Europe have raised base rates multiple times in less than a year. In the UK, higher repayments are contributing to an overall 12 per cent cut in real incomes for a typical mortgaged household between 2020 and 2024, the think tank the Resolution Foundation forecasts.

Meanwhile, in January 2023, winter climate records were smashed across many countries in Europe, with Bilbao in Spain seeing temperatures reach summer levels of 25°C.

At the same time, parts of North America suffered one of the coldest snaps ever recorded with historic snowfalls. The year also saw a host of climate-related catastrophes across the globe, from droughts and wildfires to devastating floods. Those twin fears – around the rising cost of living and the impacts of climate change – are challenging consumers across Europe and beyond, according to Tasha Chouhan, UK and Ireland banking and lending director at Tink, Europe’s biggest open banking platform. Chouhan highlights this as a tipping point at which Tink is ready to step in. Open banking empowers banks and financial service providers to help consumers adapt to ever-changing economic and environmental conditions.

To do this, Tink is focussing on three areas of development: lending, payments and personalised banking services – including sustainability tools. Tink’s September 2022 report, Lending Unlocked: A New Era Of Credit, for which pollsters YouGov spoke to 380 financial executives across Europe, revealed that 58 per cent of lenders had tightened their consumer lending criteria, including for mortgages, while 54 per cent are more careful when considering business loans.

“Forcefully restricting lines of credit will have a further negative impact on an already turbulent economy,” the report points out. “While it’s vital to protect vulnerable consumers from taking out loans they can’t afford, it’s of equal importance that those who can afford them are given a fair assessment. This means using the best tools available to prevent anyone from financial trouble, either by borrowing more than they can afford or being forced to turn to less mainstream – and less regulated – forms of credit.”

“Some of the lending models available today don’t take into account the fact that applicants’ positions are changing on an ongoing basis. Accurate and up-to-date information is needed for decision making, and this is something that the traditional manual processes don’t always offer today”

Tink believes that using open banking to provide information about credit applicants’ financial circumstances will have a transformative impact for both consumers and lenders.

“From this report, we’ve been able to understand there are a number of key factors that are really driving the need for change in the current economic climate – the cost-of-living crisis that everybody’s feeling in Europe, but particularly in the UK,” says Chouhan. “The rise of inflation and the mortgage crisis, also in the UK, really show the need for more investment into the lending models that we have.“Some of the lending models available today don’t take into account the fact that applicants’ circumstances are changing on an ongoing basis. Accurate and up-to-date information is needed for decision making, and this is something that the traditional manual processes don’t always offer today.

“We’re looking at how open banking and real-time information can improve risk profiling. How a credit applicant’s transaction history, with real-time insights into their incomings and outgoings, can help lenders assess their affordability and creditworthiness.”

Tink’s own research underlines the vast potential offered by open banking and establishes a clear need for its services among lenders. When asked what the most common reasons for being unable to assess applicants’ creditworthiness were, responses ranged from the biggest barrier being ‘unable to verify assets or collateral’ (31.8 per cent), to being ‘unable to access payment history’ (23.7 per cent). In addition, half of lenders are still not using data-driven technology to generate a credit score for loan applicants, while more than a third (35 per cent) are not using bank account data to get a clear picture of an applicant’s expenses and their overall affordability for a loan.That said, many of the respondents indicated they were planning to use open banking to improve those stats. So far, the main obstacle for lenders has been the inability to evaluate applicants in real time – without impacting conversion rates by adding too much friction.

“With the economic crisis showing no sign of slowing, better decisions on lending are needed to protect and support consumers and businesses who might be struggling with affordability in the year ahead,” says Chouhan. “The good news is that there is a growing appetite to embrace open banking-powered technologies, with 41 per cent of lenders planning to adopt digital solutions for data-driven credit scoring.“

Traditional credit checks are often limited, requiring a lot of manual input from both the applicant and the lender. This often leads to an outdated view of their creditworthiness.”Tink is extending its partnerships with fintechs to layer on additional services for its banks’ customers.One of these fintechs is the technology platform Youtility, which provides UK retail banks with embedded subscription and money management tools. Through up-to-date transaction data, the app allows customers to set budgeting goals and achieve savings on household bills, such as energy, broadband, phones and TV subscription services.

“As the climate crisis worsens, it’s clear that expectations of financial institutions are rising. Banks that fail to give full visibility over environmental impact risk alienating a key segment of their customers”

“Providing proactive money management insights – through data that shows consumers where their money is going and how they can save – demonstrates the real-world value of open banking,” explains Chouhan. “In helping consumers navigate the very serious challenges presented by the cost-of-living crisis, our collaboration is showcasing the significant benefits that open banking technology has enabled.” Of course, when it comes to climate change, the world faces a far harder and longer journey, but financial prudence during a cost-of-living crisis could have a positive impact on the planet, too. A better understanding of a household’s energy costs and how to reduce them, would, for example, lower emissions. And Tink’s research shows a growing demand among customers for tools that enable them to do their bit.“

A clear majority (62 per cent) of 18 to 34-year-olds want more information about their carbon footprint, and more than half expect their financial services provider to do more to help them reduce it,” says Chouhan, quoting from research commissioned in early 2022 during which Tink surveyed 2,000 UK consumers, asking them about the importance of cutting their own carbon footprint. “Nearly half (43 per cent) said they would switch to a new financial provider which allowed them to see the environmental impact of their purchases. As the climate crisis worsens, it’s clear that consumer expectations for financial institutions are rising. Banks that fail to give full, transparent visibility over their environmental impact and carbon footprint may be at risk of alienating a key segment of their customers.”

It’s a warning that Tink, itself, is pushing hard to address, again by forging alliances with banks and fintechs. For instance, it has teamed up with sustainability-as-a-service provider Ecolytiq, to use open banking data to allow customers to have a deeper understanding of how consumption habits impact the environment, empowering them to make climate-positive changes. Berlin-based Ecolytiq is also part of the Visa Fintech Partner Connect Programme where, for example, in Canada it is linking with co-op credit union Vancity to create a banking web application called Carbon Counter. It allows every Vancity Visa credit cardholder to be able to track the estimated carbon emissions of their credit card purchases. Chouhan emphasises that Tink is committed to enabling services that can help people both better manage their money and to safeguard the planet.

“Tink’s Money Manager technology is designed to help banks deliver tools that help people improve their finances by creating personalised insights with seamless actions that drive meaningful change,” she says. “Both the climate crisis and rising cost of living are defining issues for consumers, which is why we are building an ecosystem of partnerships, including Youtility and Ecolytiq, to provide the clarity needed for people to make meaningful decisions on how they manage their finances and reduce their footprint.”


This article was published in The Fintech Magazine Issue 27, Page 6-8

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