While I understand that high value lenders (e.g. mortgage providers) made similar assessments based on submitted paper bank statements, the massive proliferation of these services using Open Banking (or worse, screen scraping after requesting your account credentials) is concerning. Especially in cases where they use difficult to reason about AI/ML algorithms. The volume of data that can be gathered far exceeds the n-months bank statements typically requested by a mortgage lender, and it seems that most lenders use third parties like Credit Kudos rather than doing the same risk analysis in-house. Generally speaking, I don't trust them and their networks of partners and contractors to keep my data secure.
And it looks like it's becoming increasingly difficult to avoid these services when applying for a mortgage.
I already dislike the requirement of submitting to a credit check for services that aren't lending (and thus don't have to comply with finance-related regulations), have a fixed cost and can be trivially cut-off in case of non-payment such as internet or telephone service. Sadly, this battle has already been lost and the practice has been normalized; most people don't bat an eye and in monopolized industries they don't have a choice anyway.
Open Banking making this even easier is not a good thing as it just means more and more companies will now be doing this, with the inevitable overreaching data collection that follows.
At least with a credit check, all the information they get is identity verification and a very high-level overview of any credit accounts you have open and whether they're in good standing.
With Open Banking, they get a full account history, including detailed timestamps and locations for card purchases (if the bank supports it - modern banks do, and it's just a matter of time before legacy banks catch up). That's a lot of personal data which can be misused for discrimination, price segmentation, etc with very little oversight.
I'm in Canada, not the UK, but the last time I had a post-paid plan with a cellular ISP (~2015), they actually structured it in the contract as some type of revolving credit instrument, where your "credit limit" is the maximum outstanding invoice amount you can have before they cut your service off. Like any credit card, this actually involves the cellular company — as underwriter of the loan — locking up some of their own assets for each customer account, commensurate to said credit limit. That small amount of extra revolving credit showed up on my credit report!
My understanding is that they do this because, much like a credit card, cellular accounts can actually generate non-predictable-to-the-underwriter charges. Long-distance (esp. 900) peerage fees, instantaneous charges from SMS short-codes, and purchases through SIM Toolkit "apps", can all bill a cellular account directly; with the latter two classes of fees not being settled after the fact, but rather settled immediately (so the relevant merchant can receive their cut), with the cellular ISP temporarily footing the bill for them until you pay.
How long has this been a thing?
Because open banking is regulated, consumers now have a layer of protection that they didn't have before. And more people can prove their actual creditworthiness (as opposed to whatever credit bureaus think their creditworthiness is).
Full disclosure: I'm a cofounder of Nordigen, a freemium open banking platform. Views biased.
If that were the case, it'd be a more convenient alternative to sharing statements as opposed to a massive violation of privacy.
A separate regulation - the GDPR - would cover that but raising a complaint is very difficult and a complaint would involve the subject being aware of their data being misused; you can't complain about something you don't see.
My worry about Open Banking is that it makes it much easier for companies to collect a lot more data and would normalize the practice even more.
Currently there's already no reason for a credit check to be required for a lot of services such as internet or phone service (those aren't lending any money and can cut off the service in case of non-payment), but at least a credit check gives them very little personal data compared to Open Banking - I'd rather not have to give them even more data.
I'm sick of regulated solutions and generally moving toward more governmental reliance.
I wouldn't need a student loan or a mortgage if the government wouldn't cause inflation and back loans for every milestone of adulthood.
College and homes used to just be affordable. Everytime we bring in governmental assistance and regulation, we all just lose--well, not the players in the regulated and Frankensteined market, but normal people all just lose.
For 10 years I had to fight one of the 3 major U.S. credit bureaus to get them to remove a bankruptcy that was showing on my report because a relative with the same name happened to have a bankruptcy in their past. Think about how incredibly stupid that is - I was 18 at the time, so according to this report I started a business at 12 and filed Chapter 11 at 16. I had a different social security number, address, and DOB that should have made things painfully obvious, yet still the burden of proof was on me to show why this report was false. Oh, and you can only challenge it by snail-mail (at least back then). If you don't get a response, there is no number to call, no address to visit, and practically speaking no way to challenge the agency short of hiring a lawyer.
Not to mention the obvious problem of credit bureas relying on length of history as a primary determinant of credit-worthiness. I don't like debt so I didn't get a credit card until 28, and did so then only because I knew I needed to build history if I ever wanted a house. If you are a responsible steward of your finances and choose to avoid debt in lieu of paying with savings, then that lack of history may preclude you from getting a loan in the future. You could have a $2mm net worth but that credit history will still be a problem with traditional lenders.
It's worse for immigrants - the U.S. credit agencies often don't interface with their home country's agencies. Imagine a responsible 60 year old adult with a pristine record in their homeland, viewed as a risky borrower by the bureas here due to lack of history. Another problem is not having a large enough number of credit accounts. I don't need more than one card, so I just use one card, but that's a negative on my report because the agencies wan't to see multiple "revolving accounts" (credit cards) holding a balance. You have to... wait for it... have more debt to show that you're good at managaging debt.
I could go on at length about how shitty the 3 main bureas are, and if this comes off as ranty it's because, if it's not obvious, I absolutely despise them and would love nothing more than to see them relegated to the graveyeard in short order.
"You have to... wait for it... have more debt to show that you're good at managaging debt."
Suddenly made sense, despite being intended as sarcasm / surrealism. Everything else in life, I get better at by practicing. Debt may be similar; getting that first credit card, regardless of age, CAN be alluring temptation to max out. Some history of on-ramped, well managed debt, makes sense would be a prime proof that "one can manage debt" :-/
It is quite a strange system to me from a non-American perspective. A US acquaintance of mine told me their parents signed them up for a credit card as a teen so they could “build credit” early on.
Chase is guilty of this.
I went to a Chase branch a few years ago to ask about a mortgage. The banker put my SSN into the computer, and told me the computer said no. No questions about my income, no request for financial statements or account balances, or anything. Just that the computer said not to bother continuing the process.
I asked my accountant about this, and she said it was because of the way my income was structured, and that the computer "pre-approval" process has no way of understanding most of my six-figure income because my life isn't so simple that I can use a plain old 1040-EZ.
I'm sure that some banking middle manager sees these "AI" systems as wonderful things that reduce risk, or cut expenses because human beings are no longer needed to make decisions. But they hurt real people and contribute to the ongoing housing crisis. But, hey, as long as some MBA can use his budget-trimming bonus to buy a second boat, that's all that matters.
I once used this for a personal home rental application, and it automatically slurped in all my business incoming invoice payments and based on that was like "Yeah you can afford lots of rent!"
I'm (just) old enough to remember bank managers that managed banks (OK branch managers) and requesting loans where someone would review your history by eye and make a decision on that and a few well chosen questions.
This was also a place that opened at 0900 and closed at 1700 and was not available at 1200-1300 and also couldn't be arsed to help you out arbitrarily. You had to take time off work to visit a bank - yay! Meanwhile they made profits from your credit balance (investments) and your debit balance (interest). Go overdrawn? that'll be a letter (£25 in 1995ish) and punitive interest.
That was the past but: Banks are profit generation centres. My personal wealth has (there's always the mattress) to be lodged in a bank and they insist on making a profit out of me.
Sounds very odd. Handing your log in credentials to anyone is against the rules not to mention common sense. Even the bank itself will never ask for that. My bank's website has warnings about this right on the front page.
[1] https://www.justice.gov/opa/pr/justice-department-sues-block...
In U.S. most "open banking" is still done via asking people to share their banking passwords.
I guess it's a two-edged sword.
It's probably worth clarifying that there are no institutions that would be categorised as "open banks"; Open Banking [0] is an umbrella term for a set of technologies (primarily APIs), regulatory frameworks and standards which allow easier integration between businesses in the financial services industry. The bar for getting access to those APIs is high enough that it would generally exclude customers who'd like to query their own accounts from their own software, but not so high to stop the proliferation of startups keen to monetise and analyse customer transation data. For the most part, in the UK you can't just ask your bank for an API key and use it to pull transaction data from your own account but your mortgage lender can require you to share that data with a third party as a condition of extending a line of credit.
I believe this is how Experian Boost works in the UK; you can "boost" your Experian credit score by linking your bank account via open banking and allowing them to analyse your transaction history. However you would need to read (and fully understand the breadth of) their privacy policies and terms and conditions to understand how your transaction data is used (and how it may be used in the future).
One of my primary concerns is around data being shared on, and on, and on. Regulation helps a little, but I'm afraid that we'll end up in a similar situation as we have with other types of data online (analytics, advertisement targeting and telemetry) where you may opt out of certain types of data collection but find that next tab on the opt-out dialog lists hundreds of partner organisations with a "legitimate interest" in your data. And with financial services, it's even more sensitive - it would be disastrous if people were excluded from applying for a mortgage because they refused to share incredibly detailed transaction history with a third party credit risk firm. And worse still if, upon sharing that data, they were denied a mortgage because placing an occasional bet online, subscribing to an OnlyFans creator, spending thousands at the Apple store and trading some disposable income on eToro fit a pattern that a black box algorithm deemed high risk.
It would be better to have credit decisions not rely on such invasive analysis of personal data.
As far as the UK is concerned, neither. There is no Apple Card in the UK (or indeed Europe for that matter, AFAIK).
These are good ideas. Many people have debt from all kind of life issues and it kind of seems insane to lock them out of financing for … a phone or the like.
The credit score system is the OG social credit system that China ain’t got nothing on.
Why is that insane? Why would a company essentially loan money to people they think are unlikely to pay them back? A £1200 iPhone is certainly not essential when there are serviceable equivalents for < £100 without the need for a contract.
They don't need the very obsolete technology, obsolete business processes and obsolete management mentality of most existing banks. Much better to start with a greenfield site and acquire customers from there.
Many people would drop their existing bank in a heartbeat if there were a viable modern alternative. Apple is in a perfect position to capitalize on this widespread dissatisfaction.
There already is a standard for open banking in the EU with PSD2.
For example, Revolut is a bank in the EU via a Lithuanian banking license, but only an "e-money institution" in the UK (though the application to become a British bank -- and for that matter, an American bank, and other jurisdictions -- is in progress).
Monzo is a UK bank, but opted to cancel their US banking application, and I don't believe is an EU bank either (someone please fact check me here!)
The closest service I have gotten to this was (also not exactly an EU company) American Express - but that was still two different legal entities.
