Millennial buy now, pay later (BNPL) finance firm, Payl8r, is calling for the adoption of open banking as a legal requirement for credit assessment in the same way that credit checks are, to ensure safer lending for borrowers in the face of rising costs of living.

Open banking technology connects banks, third parties and technical providers, enabling them to exchange data simply and securely to the benefit of the customer and provides vital information to ascertain whether they can afford a loan.

BNPL lender, Payl8r, has been regulated since it launched and already uses open banking at the point of application.  While it acknowledges the challenges and costs of using this technology, as a trailblazer in the use of open banking, Payl8r is now urging other BNPL providers such as Klarna, Clearpay and LayBuy to follow suit.

Payl8r believes that other lenders may not be using open banking because the more accurate picture of a consumer’s financial situation and risk level it offers, could mean having to turn down potential borrowers who do not fit the more stringent criteria.

“Our fellow fintechs have a duty to ‘do things differently and drive the financial services sector to do better, challenging the way banks and other institutions have operated for years.  The use of credit reference agencies alone is an example of this, especially when open banking-enabled approaches are at our fingertips and give us essential insights and guidance to assess individuals’ affordability. As the innovators, fintech BNPLs should be doing everything in their power to improve their financial well-being and help consumers manage their money, pay off debt, spread costs, improve credit scores and correct credit misuse” says Sam Fogerty Managing Director at Payl8r, a BNPL firm at the forefront of responsible lending.

“I can understand a level of nervousness towards adopting open banking technology but what it takes away by shining a light on an individual’s affordability, it also gives back by finding customers that would previously have been turned down. An individual’s creditworthiness shouldn’t be judged on their past performance alone. It’s an altogether more accurate and responsible way to lend.”

While other lenders claim to use open banking, usually it is only as a means of unlocking more credit after accepting the customer, which is only adding to the problem.

Only last week, the Financial Conduct Authority (FCA) contacted over 3,500 firms, including retail banks and credit firms, in a ‘Dear Chief Executive’ letter urging them to give greater support to all borrowers including those in financial difficulty in the face of the rising cost of living.

Samantha continues: “Currently we use open banking for credit assessments on 100 per cent of returning customers and then we aim to reassess the customer through the lifetime of their loan.  We also use it on 60 per cent of new customers and our ambition is to raise this to 80 per cent, but we can’t do this until other lenders start adopting this model of working.  Once adoption of this technology increases, we would like to use open banking on 100 per cent of our customer base.

“While we are facing tough times ahead, it might be that the cost-of-living crisis leads to the mass adoption of open banking and more responsible lending.”