How Open Banking can help loan companies check income

February 5, 2024
min read
How open banking helps lenders with income checks

For lenders, there are a number of considerations to take into account when taking on a client. What do they need from a lender? What is their regularity and reliability when it comes to repaying their loans? 

And a big question: What does their income situation look like currently?

Before open banking, these questions were all much more difficult to answer. They required potential clients to get verification from their own banks – often in paper – and present the verifications to lenders, telling them what their income situation looked like, what loans they have, how frequently they repay their loans, and more. 

On the end of lenders, the process was also laborious. It required poring through documents, looking for information that indicated how regular and how much a potential borrower’s salary was, and what their history of repayment was in the past. Not only that, but it required putting all that information together to determine just how creditworthy a potential borrower was, and thus, how the cooperation with the borrower should look. 

Thankfully for lenders, open banking solves the laboriousness problem. 

With open banking, lenders and other verified entities can check a potential client’s income nearly instantaneously, with the client’s consent. 

Open banking, which came about thanks to the PSD2 regulations passed in 2018, allows lenders or other verified parties to connect with the potential client’s bank and view their credit and financial history in a matter of minutes. 

Not only that, but open banking has given rise to Fintechs that make the process of verifying that information even easier. 

Below, we break down exactly how open banking can help not only check income, but also analyze that information. 

Check income easily

Open banking opened the door for easier, faster and more efficient income verification. Lenders who are considering working with a client only need to ask the client for consent to view their income and financial history. Using a simple system (often called a Widget) a client can click on their bank provider and enter the correct login information. 

Then, the lender, with help from a Fintech like Kontomatik, can connect with the bank using an API, which allows the bank to send the client’s financial information to the lender. 

That all happens in a few minutes, meaning that almost instantaneously, the lender has the ability to view that client’s information, including their sources of income. They can see how many sources of income the client has, how much income they receive every month, and how regularly they receive that income. 

In short, open banking makes it possible for lenders to see the full picture of their client’s salary and income. 

Cut down on fraud

There was another problem facing lenders prior to the onset of open banking: fraud. 

Those paper documents that a client would get from a bank prior to open banking, and then give to a potential lender, were subject to fraud attempts. Paper documents are easier to tamper with; it’s easier for bad players to manipulate the numbers in a paper document before turning it in to a lender, showing that they have more income or more regular income than they actually do. 

But open banking cuts through that problem. Instead of relying on a potential client to bring the physical documents indicating their income to a lender, the lender simply makes the request for that information to the bank. 

That way, any middle man is cut out, and the lender knows the information they receive from the bank is untampered with, and accurate. 

Fintechs help make income verification even easier

Though open banking has opened the door for more accessible viewing of client data, the question of compiling and understanding that data can still be a problem for lenders. It’s hard to pore through all of the client’s financial transactions to understand exactly where their money is coming from and where it is going. It’s even harder to analyze that data and understand whether it indicates a client is creditworthy or not. 

Luckily, open banking fintechs have provided a solution. Fintechs, like Kontomatik, provide income verification services, which analyze the client’s financial transactions, their spending habits and their salary, and produce a report that gives a lender a full picture of that client’s finances, without the hassle of poring through all that information themselves. 

Kontomatik’s Income Verification Service is a perfect example: This service provides information about the sources of the client’s income (including both owners and co-owners of the account), based on transaction data from the client’s account. Kontomatik, which is supervised by the Polish Financial Supervision Authority, is able to analyze and compile the client's financial data and return information about the client’s sources of income in the last 90 days. 

That’s not all: Kontomatik will also provide a certificate, ensuring that the information about the client’s data is accurate and authentic. 

Checking a client’s data can be a difficult, and even daunting, task. Ensuring that the client has verifiable sources of income can be equally difficult. Luckily, open banking and financial fintechs have helped ease the burden by providing solutions that make the process of checking income not only fast, but easy. 

For more updates and analysis on open banking, follow Kontomatik on LinkedIn

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