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Consumer understanding of the potential offered by Open Banking remains low, but there is substantial untapped demand for Open Banking to provide improved access to credit during and post the Covid-19 pandemic, according to research from digital bank Zopa.

It found 40% of UK consumers would make use of Open Banking to apply for credit if it improved their chances of getting an offer, gave them access to better rates, or made the application faster and hassle free. However, 80% of consumer report they have never knowingly used Open Banking.

Zopa’s findings indicate that so far adoption has mainly been driven by use of account aggregation services, with 50% stating that viewing all their banking products in one place makes them feel more secure. Its research showed a third (34%) of those polled use Open Banking to view all bank accounts in one place, 28% to keep an eye on all savings and investments, and 27% to move money between bank accounts and savings,

However, Zopa’s research also suggested that the introduction of Open Banking to previously untapped customer needs, like access to credit, could rapidly accelerate this adoption, benefitting up to 40 million active users by 2025.

It found that UK consumers would use Open Banking to apply for credit if it helped them simplify the application, making the application faster and hassle free (cited by 44%); unlock better rates, accessing better rates on financial products (43%); or secure an offer, improving their chances of getting an offer from a lender (40%).

Zopa has partnered with ClearScore, which used Open Banking to assess eligibility for Zopa’s credit card. This resulted in a 37% increase in the number of users eligible to apply for a Zopa credit card, improving financial inclusion for thousands of new customers who may have previously been declined due to thin files. Within one week of roll out, more than 43,000 ClearScore users saw a Zopa offer which would not have been available to them based on credit report data alone.

Tim Waterman, chief commercial officer at Zopa, said: “We are pleased to be part of a group of fintechs at the forefront of innovation, bringing the benefits of Open Banking to millions of new customers. We already use Open Banking verification to ease application journeys and to power tools like Borrowing Power which help our customers improve their financial health.”

Self service tools

Zopa has also expanded its credit health tool, Borrowing Power, to include its credit card. Initially launched in late 2019, Zopa’s Borrowing Power tool helps users improve their financial health and gain access to better priced credit with Zopa. By combining an individual’s credit score data from Equifax with Zopa’s inhouse affordability checks, the free tool provides simple, personalised actions to help customers improve their Borrowing Power credit rating

Zopa users can access Borrowing Power to improve their Zopa credit score and gain eligibility to Zopa’s products, as well as to improve their credit score more widely.

This in turn increases their chances of gaining access to Zopa’s lending products and of being quoted lower rates. The number of Borrowing Power users now stands at more than 110,000, with one in three Zopa app users checking their Borrowing Power every month. Positively, 80% of users rate Borrowing Power actions highly useful in improving their credit health.

When it comes to using their improved score to get a loan or credit card with Zopa, users can clearly see if they are pre-approved for a credit product, and at what price, before a hard search is carried out (which marks their credit file). This gives the customer ultimate transparency over the deal that they are getting.

This transparency is extremely important. Recent Zopa research reveals that 20% of UK adults don’t understand how the APR they are offered is calculated, and 11% don’t know that their credit score affects the APR they are offered on credit cards.

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