Category: Bank

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Rise of Open Banking – New Innovations for Small and Medium Sized Businesses

impact of open banking small business

Small businesses of today aren’t like the old days, limited to a particular market. Today’s small to medium-sized businesses (SMB) are evolving and leveraging emerging technologies to keep up with the giants. While some businesses are still stuck with old and traditional methods for customer acquisition, capital access, and more. Businesses using digital apps and services have a clear advantage. 

More and more consumers are now using open banking-powered solutions to handle their finances, save time, and save money. So, it makes sense for SMBs to also jump on the open banking bandwagon. This helps SMBs to cater to consumers’ needs and understand their demands. In this increasingly digital world, any SMB that’s capable of providing a unique yet tailored customer experience wins the race.

The crisis brought forth by the pandemic in the last two years has forced SMBs to ride the financial technology wave. A study conducted by Mastercard named the Rise of Open Banking, highlighted the rising costs and newer methods for customer acquisition and other important factors for SMBs. 

The new and easier access to technology has led to an encouraging trend, SMB owners have been quick to adopt digital tools to fund, manage, and promote businesses. According to a finding in Mastercard’s study, 9 out of 10 small business owners consider themselves heavy FinTech users. Their use is both personal and commercial. 

Some other important pointers from the research include:

  • 80% of SMB owners started using digital channels for loan applications in the last 2 years.
  • 84% claim that technologies make them feel better while applying for loans.
  • 64% have received some kind of business loan using digital means. 

The adoption of digital channels is higher than consumer numbers. SMB owners need to generate enough business to stay afloat so they’re more than happy to adopt technologies. They’re accustomed to adopting market conditions.

Digital Transformation is Solving SMB Challenges

The Covid-19 pandemic forced businesses all over the globe on how they operate. Banking, finance, investing, savings, and several other parts of the financial industry have gone digital. Technologies are changing how businesses conduct their day-to-day activities.

Doing businesses from home or while traveling has become super easy. Small business owners are taking advantage of every possible beneficial technology available to them. They’re also one of the most FinTech-heavy businesses, regardless of the industry. 

While business owners are learning how to adapt and adjust to uncertain and changing regulations. Some concerns that every SMB owner has in their mind are:

1. Inflation

The rising costs of almost everything are the first and foremost concern for small business owners. With this year’s record-breaking price hikes, businesses have to find new solutions to cut down costs and remain profitable. 47% of owners claim that rising costs are their biggest concern. Consumer-focused industries such as restaurants, and retail have it even tougher to stay profitable. 

2. New Customer Acquisition

39% of SMB owners say that acquiring new customers is the biggest pain point. Professional services businesses were more urgent about new customers. 49% of SMB owners say that finding new customers is their day-to-day concern. 

3. Hiring Skilled Employees

Pandemic-related challenges quickly changed the employment landscape quickly and drastically. 35% of all employers are having trouble finding skilled employees in this new landscape of hiring. 

4. Managing Operations

27% of owners said that efficient tools and systems to manage operations are one of the biggest challenges for them.

Open Banking Innovations – Improving Speed, Efficiency, and Personalization

Over 80% of SMB owners want faster, easier access to capital. This is why they’re more than ready to partner with FinTech for customized, and agile funding solutions. Almost all SMB owners heavily rely on credit cards, and 81% of owners are interested in business loans that meet their requirements perfectly. Over 60% of small business owners require loans to keep surviving in the market. 

Faster payments are also something that SMB owners look forward to. To streamline the payment processing experience for customers, Small business owners use Open banking tools. They leverage digital wallets, cryptocurrency, and other FinTech tools.

Connecting accounts to manage businesses’ finances provides the opportunity to give personalized insights. It also adds convenience for SMB owners wanting to streamline the way to handle business operations such as banking, invoicing, managing cash flow, and paying bills.

SMB Open Banking Adoption is Going Strong

SMB owners are using open banking innovations to better handle their finances. By integrating open banking into their operations, they’re creating a smoother, and easier-to-handle workflow.

Open banking can streamline linking accounts, payment processing, customer onboarding, bank account verification, and other parts of a business.

Owners are linking their financial accounts with open banking solutions to gain a competitive edge above their competitors. 85% of SMB owners are looking for solutions that can be customized according to their business needs.

Feeding intelligent, and quality data in financial management tools is giving businesses the edge they need for growing in this changing environment. Paying and getting paid becomes faster and more efficient.

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How does Bank Data Validation Process Work?

bank data validation process

Now that the financial industry has completely embraced technologies into their processes, it’s important for them to make sure that payments are error-proof. Customers make mistakes. Instead of trying to teach customers the right way, banks should employ a bank data validation tool. Banks should try to make every part of a customer’s journey as seamless as possible. This also includes smoothing out the transactions.

Another added benefit of doing so is that it helps in preventing fraudulent activities. When banks verify bank account information before every transaction, it reduces the risk of fraudulent payments going through. It goes without saying, bank data validation is crucial.

But what exactly is “Bank Data Validation?” In this article, we will shed some light on the bank data validation process and how it helps out banks and customers.

What is Bank Data Validation?

A lot of consumers confuse bank data validation and bank data verification processes. While they may sound the same, the processes are slightly different. Bank account data verification means verifying the input information against the information present in the database. Data validation on the other hand involves an algorithm-based process.

In simple words, it means that payment details are checked using a series of data and information. This allows the system to understand whether an account exists or not based on the numbers.

Moreover, this process is instant during payments, meaning customers don’t have to wait. Merchants can instantly verify the details and correct any errors that pop up. Bank data validation offers a number of benefits:

  • Reduces the risk of payment errors/failures
  • Eliminates the need of inputting bank details over and over again
  • Uncovers and prevents fraudulent transactions

What is Bank Data Validation Automation?

Now that you have a fair understanding of how the bank data validation process works, let’s discuss how banks can implement it. The process of implementation is super easy for merchants. There are endless online solutions that will gladly help you implement the solution. You can ask them to install the solution and then automate the bank validation on the input of payment information.

There are a lot of bank data validation solutions out there, it’s easy to choose one based on your needs. 

The process itself is pretty difficult, and it requires a deep understanding of data structures. Basically, the third-party services simultaneously check if the account information is correct and if the account can make the payments. 

With access to this information, banks can decide whether to authorize the payments or not. Additionally, the bank data validation solution can also be used to access other data such as Bank Identifier Code (BIC), IBAN, and other information.

Advantages of Using a Bank Data Validation Solution

There are a number of benefits of implementing a bank data validation solution. Banks of today need to provide a smooth experience to the customers, so technological integration is important. A bank data validation solution can help your business by:

  • Avoid Payment Delays

When you have a process in place that verifies bank information before payment, you can get rid of unwanted payment delays. Any incorrect information that a customer adds will be instantly identified. Customers won’t have to re-enter information once the payment fails.

  • Eliminate Fraud & Multiple Tries

If a transaction is authorized without verifying the details, it can be expensive to rectify the information. So, the best way to move forward is by identifying information firsthand. It can also reduce the risk of fraudulent payments being authorized.

  • Valid Payments

It helps in confirming if the payments are valid or not before they are processed. This leads to improved customer satisfaction. Customers get annoyed if they have to re-enter the same information. When information is verified firsthand before the payment, customers get a sense of security in the institution.

Simply put, bank data validation is an essential tool for increasingly modern banking. It improves customer satisfaction, and also reduces the headaches for the bank’s payment processing team. 

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Why Open Banking for Income Verification?

Open Banking for Income Verification

Going through a loan application process is one of the most daunting things you can go through. Whether you’re looking forward to buying a home, or automobile or have to go through a mortgage lending process, you have to sit through this process. The biggest part of the loan approval process is income verification.

It can take a lot of time and involves a huge number of paperwork. If you have all the right documents stored in a particular place, then you can use them to complete the process fast. But, if you have your documents scattered all over, then the process becomes frustrating. 

Here’s how open banking can help in the income verification process for lending.

Common Documents Used for Income Verification Process?

Paystubs are one of the most common documents that are used to verify a person’s income. It serves two purposes, it can help in completing income and employment verification. With a paycheck that’s traceable back to the employer, a lender can easily figure out what kind of income that’s coming in. They can also follow up with the employer to verify the information provided by the lender. 

Other income documents include proof-of-income letters, the standard W-2 annual tax statement can also work. Other tax forms may be more fragmented. Unfortunately, these documents aren’t available all the time. While they can be easily obtained from your organization’s payroll providers and tax filing software, they still require a significant amount of hassle for both the borrower and the lender. 

Moreover, processing that kind of paperwork, following up with the employers, and verifying the details is time-intensive, and thus money-consuming.

How Open Banking Improves Mortgage Lending?

Mortgages are one of the biggest loans that consumers have to take in their life. This is also why the mortgage application process is complex. According to a survey, the biggest reason why people hesitate to get a home loan is that they’ll have to go through the loan application process. 

Mortgage credit decisions end up falling on the borrower’s ability to make the payments on time. Almost all mortgage lenders ask for at least 2 years’ worth of income and employment verification history. This happens using tax documents, pay stubs, and asset management. The same goes for self-employed borrowers. 

The recently launched MasterCard open banking platform is able to leverage open banking data to cover all the strict guidelines for high-value loans. This helps in easing the income verification process for both parties.

How Can Renters Benefit from Open Banking?

Homeownership isn’t suitable for every person, and open banking makes the elimination process easier for banks. Landlords screening for potential tenants can also leverage open banking data to make smarter and informed decisions much quicker. It can also be used to give context to low credit scores. There are other red flags that can also be uncovered using open banking. This also leads to a simpler and fairer decision-making process. 

When do Auto Loans Require Income Verification?

Auto loans don’t generally ask for income and employment documents, but they may ask for them whenever a borrower has a low credit score. The same goes for credit cards, personal loans, and other payment sectors.

For low credit score borrowers, just checking the credit score doesn’t tell the whole story. It can lead to frustrating denials, even though they have evidence of qualifying income and they pay bills on time. 

By incorporating income and other data, like transactions from connected bank accounts, debt-to-income ratio, and more. Borrowers can be approved for their car loans and qualify for lower interest rates. Lenders, on the other hand, won’t miss out on onboarding new customers with a simple income and employment verification process.

How does Income Data Lead to Personal Lending Decisions?

For many personal lenders, verifying income history may not be the best way to approve loans. With open finance, income data, transaction data, and other financial data can be incorporated into their lending algorithms. 

Personal lenders of all types can look at multiple types of data, based on how much they’re lending and what the money is being used for. The open banking landscape provides highly customized data, straight from the applicant’s bank accounts. This leads to better decision models.

They no longer have to be satisfied with the submitted documents. By accessing consumer-permissioned data anytime, lenders can get a complete view of a customer’s financial health and bank account data.

How Does Open Banking Income Verification Help Consumers?

Verifying a customer’s income with data permission by consumers allows lenders and FinTech developers to streamline the customer experience during the loan application. Moreover, it offers better choices to consumers.

Open banking provides access to data that’s needed to verify income quickly, securely, and without manual effort. It is the best solution to improve lending and mortgage processes.

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Banking-as-a-Service (BaaS) Revolution

baas financial tech

Traditional banking is extremely limiting, and it requires users to go through a lot of hoops. Opening a bank account, applying for loans, or any other thing forces users to go to a physical branch. Fortunately, the recent wave of modernization in the banking sector is all set to change the traditional norms. 

Today, banking services are available digitally to most users. While currently, they’re available as an accessory to traditional banking services, innovative solutions will change that soon. Several FinTechs out there are enhancing banking user experiences for customers.

The digital movement is providing consumers with more financial freedom and options. Customers can build their financial lives as they see fit, and Banking-as-a-Service (BaaS) is making it all happen. Customers can now turn to innovative solutions that offer niche solutions that cater to the business’s needs.

However, building a new FinTech company, app, or product from scratch is a complex process. The traditional method of creating financial services was a long and hard road. BaaS platforms and platforms and technology solutions provide the building blocks necessary for a FinTech or Neobank to quickly start creating innovative financial use cases for the consumers of today.

Modernizing the Banking Solutions

To offer a banking service, entrepreneurs need the help of emerging BaaS platforms that can help them enter the industry. Whether an entrepreneur is facing challenges in issuing cards, sending ACH payments, or more basic financial operations, developers can take these blocks and reassemble them to meet their needs. 

The key to building FinTechs with a BaaS provider is having just one API that’s super easy to connect with. This reduces the architectural and modeling needs of the FinTech development team. These tools allow FinTechs to onboard new customers with ease and without delays by using a series of verification solutions such as online document verification. 

Another reason to rely on a BaaS provider is that it’s easy to make changes using an API if you’re using multiple solutions. If a company has been facing problems with their customer verification solution they can easily and seamlessly replace it with a better solution. This makes scaling up or down easy and a hassle-proof process.

BaaS Providers: Offering a Plethora of Options

BaaS includes all the digital banking services, including those developed in-house and those developed outside. Most BaaS providers offer a single API marketplace to make it easier for FinTechs to launch everything simultaneously. 

FinTechs with limited resources can sign up with a BaaS provider instead of relying on FinTech developers, which leads to fewer overhead costs.

Working with a BaaS provider allows FinTech builders to focus more on the features they want to offer and less on the development side. The marketplace solution means that FinTech can rely on multiple solutions at the same time, if one fails they can move on to the next one.

Why Fraud Detection and Speed Are Crucial?

It’s understandable that the risk, compliance, and customer experience need to have a balance. FinTechs can’t compromise on fraud prevention solutions. By adding open banking data to the BaaS platform, financial service providers can verify and access bank account data with DIRO bank account verification. This helps in ensuring that the person opening the account actually owns the account and that all the information provided by them is true. 

Speed is another concern for upcoming FinTechs as consumers want a lightning-fast experience. As banks are not tech companies, their knowledge of tech and the ideal customer experience is limited. COBOL, a programming language developed in 1959 is still used in multiple banking systems and this makes it tough to upgrade the banking systems. 

This can result in a speed mismatch between banking networks and the world of FinTechs, who want to be able to release new products and services in a few weeks.

There’s a lot of new technology being created to improve the financial experience for customers all across the world. These FinTechs also need to rely on world-class technology that can offer brilliant customer authentication solutions for a reduced level of fraud. This is where DIRO identity verification comes in.

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State of Europe Open Banking Revolution

Open Banking Revolution

While the open banking APIs are being used commonly in the EU, the APIs in Europe still have a long way to go. There are some fragmentation-related challenges that have to be overcome and several challenges around stability and availability. Open Banking payments still have to reach a tipping point, what is required now is regulatory and industry pressure to overcome these challenges in open banking.

A Fragmented Europe

On the issue of SEPA instant adoption, not all banks in Europe support that and support is even inconsistent within the banking groups. For example, between 2-3 regional branches of tier 1 banks in France don’t support SEPA instant. 

This lack of harmony in the bank processes comes from the fact that it wasn’t taken care of in the PSD2. As a result, Europe has a highly fragmented market with different technological standards of APIs and on top of that, we are ignoring the fragmentation of the transaction processing. 

The utilization of SEPA can easily provide an answer to these questions as the payment happens in real-time which eliminates the problem of cut-off times, and the fact it is also instant means predictable statuses and transaction outcomes. These are the major reasons why the European Banking Authority and NCA should focus on SEPA instant adoption. 

As there is not a single pan-European Open Banking API supporting payments, industry initiatives have resulted in API standards for accessing bank accounts. 

However, in terms of variation across banks, there are fewer frameworks. Some banks have also taken and decided to implement their own payment standards. Given the complexities and broken system of Open Banking APIs in Europe, having the right solution to help you overcome fragmentation in the market is vital to delivering value back to your organization. 

While SEPA is part of the solution, customers have to pay a certain charge for these transactions, which could prevent users from adopting it more widely. This is why there need to be other standard solutions for Open Banking.

Unlocking Data Access Across Industries

As the open banking landscape is slowly shifting towards open finance, embedded finance is often highlighted as the ultimate application of open banking technology. An ideal example of how FinTech journeys can boost customer experience.

Convenience is the key to creating superior user experiences, that’s why embedded finance is highly anticipated. It’s this kind of “under-the-hood” thinking that we believe will become the future of finance. But before we can try to perfect embedded finance and prepare for open data economies, we have to level the playing field by providing access to data.

The Future of Open Banking 

Overall, Open Banking APIs offer stability and are improving at a significant rate. The UK has achieved a significant amount of success in embracing Open Banking, and Europe is right on track. But there’s still a long way to go for banks in Europe to embrace Open Banking APIs. If they take the right measures, it can be great for the future of open banking.

Notifications of planned and unplanned downtime are inconsistent, and banks often go offline for hours or even days without notice. The primary question is what banks can do to enhance the industry? It is high time that regulators step in and build regulations. These regulations can lead to better customer-business relationships and reduce the flow of fraud. Some of the basic measures include bank account verification, proof of address verification, and KYC. Admittedly, there’s no real solution here, but the only solution is that regulators need to put their minds together and focus on their projects. 

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AML and KYC Compliance with Open Banking

open banking kyc and aml

Regulatory compliance is the biggest challenge for most financial institutions as it keeps changing. Financial services must have regulations that minimize the risks of customers engaging in illicit financial activities such as money laundering. Every financial institution is aware that collecting and leveraging financial data is costly. The time taken to onboarding customers tends to be lengthy and most customers leave the KYC compliance process in between. Businesses operating in the financial industry are finding it hard to access financial products due to the extensive information it requires.

Compliance costs are increasing annually due to the constant changes in the KYC and AML regulations which is vital to reduce the risk of financial crimes. According to a report, major financial institutions spend up to $500 million annually to stay compliant with KYC and AML regulations. Open banking can help in reducing compliance costs by streamlining the onboarding process by leveraging customer data to mitigate risks. The use cases of Open Banking can include retrieving information about the customer and the institution onboard. With open banking, the basic data such as name, DOB, country of residence, and address can be accessed easily. Without open banking APIs, a huge series of information won’t be available to banks such as a source of wealth, transactional data, and other sources of information.

Although open banking is a helping guide to traditional banking compliance teams instead of a substitute for them, many onboarding and AML decisions will continue to rely on financial institutions’ judgment and risk factors.

Open Banking and KYC

KYC is a due diligence process that financial institutions need to follow during the initial relationship with clients. In its entirety, KYC and background checks help banks and other institutions determine if the person is who he/she claims to be and if they are involved in some illegal activity. 

Depending on the financial service that’s being offered to the customer, the level of due diligence and the amount of risk faced by businesses change. There are three levels of KYC verification and all of them have the same objective. The only major difference is the amount of information that has to be collected from the customers. 

  • Simplified Due Diligence: This level of due diligence is applied to customers with the lowest level of financial risk. The information required to complete this is basic such as name, surname, and date of birth. In the EU, each state is allowed to make up its policies regarding data collection and they have to apply the guidelines offered by regulators. 
  • Ordinary Due Diligence: This level of due diligence is applied to low to medium-risk customers. Medium risk customers can be businesses that offer financial services of their own as insurance and credit services. Ordinary due diligence requires more data compared to simplified due diligence such as the location of the business and customers, source of income, and national insurance number (if required). 
  • Enhanced Due Diligence: This is the strictest due diligence that’s applied while onboarding high-risk customers. High-risk customers can be businesses that deal in financial services, politically exposed persons, persons on sanction lists, and businesses that operate in high-risk countries such as the Cayman Islands. 

In the current regulatory landscape, there is no fixed information that’s required by banks or regulators. A common or centralized digital ID verification method is required for banks and other financial institutions to reduce the risk of financial fraud while offering a seamless customer onboarding experience. While this is almost impossible to achieve, the ideal thing to do is a partner with FinTechs that can offer seamless online document verification software, online KYC verification software, and other solutions that can mitigate risks and improve customer onboarding.

Open Banking and AML

In the current environment, banks have a limited view of what their customers are up to. The information available is limited to the information that firms can collect from clients or public data sources. It also means that to comply with AML regulations and to monitor transactions, banks and regulators have to rely on information that comes from unreliable sources. 

With the widespread implementation of open banking and open banking APIs, this situation can be easily solved. As open banking relies completely on data sharing among banks and third-party service providers, collecting trustworthy data to onboard and monitor customers becomes seamless. By embracing open banking APIs, banks can access data from a trusted entity about any particular client, thus making KYC and AML compliance easier.

Instead of accessing only a fraction of customer financial data, firms would be able to gain a broader view of the entities they’re doing business with. This would make banks and financial institutions better at detecting fraudulent behavior and patterns in a customer’s transaction history.

This is why digital transformation is crucial in the financial industry. Being able to access data will allow a standalone financial service provider to provide customized services to customers. Tedious and risky processes like lending and assessing creditworthiness will also become easier. Open Banking APIs will allow firms to collect quality data about customers and businesses which will not only help them but other businesses and service providers in the industry.

Conclusion: Open Banking and Regulatory Compliance

To summarize, Open Banking opens new doors for banks and other businesses operating in the financial landscape by allowing them to access more data. More customer data means a better assessment of customer behavior and the risk level a customer poses. Widespread use of open banking APIs will also boost innovation in the industry, as the third-party service provider will try to offer customized services to the customers.

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Open Banking in 2022: What To Expect?

open banking in 2022

2021 has been kind of a relief for people all over the world trying to tackle the wave of the COVID-19 pandemic. Now that most parts of our day-to-day are becoming normal, will banks revert back to their old selves or keep on pushing with digital transformation and innovation? All the evidence suggests that banks and other businesses operating in the financial industry are aware of the benefits of digital transformation and open banking. Technologies like open banking APIs can successfully enhance the overall workflow for businesses while ensuring a seamless experience for customers. Open Banking or Open finance is growing at a steady rate in the financial industry and here’s everything that is expected of Open Banking in 2022.

Leveraging Account Data to Develop Broader Products

Financial products and services are on the verge of changing dramatically. All of this is possible because of information and payment methods made possible by open banking. By the end of 2022, the financial industry is expected to see greater adoption of technologies for mainstream activities and innovation for tougher tasks. Customers can expect to access a broader range of products and services, only if they consent to third parties accessing their financial data, for building custom products and offerings. 

With the widespread adoption of open banking and with leveraging data, the lending and creditworthiness assessment process will change significantly. With banks and third parties accessing customers’ financial data, they’ll be able to offer a wide range of personalized products and services including better lending options with lesser risks for banks. Loans that are tailored to a specific person’s financial data or transactional habits will result in a better variation in interest rates and levels of credit.

As open banking evolves with time, it’ll lead towards Open Finance, simply meaning enhanced availability of credit cards, savings, and mortgage data will allow lenders to make better decisions regarding lending and offering credit cards. This data can also be utilized to tackle financial fraud like account opening fraud, account takeover fraud, and ID fraud. Open Banking APIs like online document verification API can help in detecting fraud during the initial steps of a customer-business relationship, thus reducing the risk of potential fraud significantly.

Open Banking Payment Solutions Will Become Mainstream

Open banking payments are already leaving their mark by eliminating the unnecessary fees and poor customer experience that customers face during card payments. Businesses like investment platforms are currently allowing customers to use Open Banking to create new accounts. 

Due to this change, eCommerce businesses will experience the biggest benefit in the near future, with an enhanced checkout process and reverse payments. Open banking-powered payment methods aren’t as widely known or used in the industry, but as more and more customers rely on online payment solutions, their need for better methods increases. Reducing transaction fees and improving the overall customer experience will be the key factor in the transformation and adoption of open banking payment.

Not only the purchase, but the refund process will also become easier with reverse payments. This will provide businesses with more control over their decisions, this will ultimately mean that customers won’t have to wait for days or weeks to get their money back from the business.

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US Digital Banking Revolution: Importance of Digital Identity

us digital banking revolution

While most of the banking landscape across the country was on track toward a successful digital banking revolution, the Covid-19 pandemic fast-tracked the process. Regardless, some parts of the US financial industry are still operating in the dark. As the United States is often at the forefront of many things, it doesn’t make sense that the US falls behind other countries in an area as important as banking. The US digital banking revolution has been a slow process, but the situation is turning around.

Most of the time, when a customer decides to open a new bank account or send money overseas, they have to visit a physical branch. Even after so much growth in the technological department, customers still have to stand in line to get their tasks accomplished. Most customers find that the manual process takes too long and it doesn’t meet their needs. Pre-pandemic, more than 160 million people relied on online businesses, and over 56% of customers stated that the primary way they accessed bank accounts was through a mobile app.

As the digital world is growing, customers demand more convenience, time efficiency, and instant access to their finances. This isn’t possible without all banks taking part in the digital banking revolution. And, digital identity plays an important part in this.

Challenges in Fraud Management, Privacy, and Customer Experience

Most banks skip out on digital transformation because it’s a time and money-exhausting process. Going digital comes with tons of challenges for both customers and businesses. Some of the biggest challenges include online fraud, user privacy, and friction in the customer experiences. 

For example, fraudsters can easily set up fake bank accounts using leaked SSNs and fake ID documents. In 2020, the estimated amount of global fraud losses was $32.39 billion, which is triple the amount it was in 2011. Preventing fraud isn’t the only major challenge that banks have to face. Providing consumers with a seamless and secure onboarding process is also essential. Over 44% of all US customers abandon the application process during onboarding if the process is too complicated or invasive. 

Protecting consumers against fraud while providing them with a smooth onboarding experience is the most important part of digital banking.

Importance of Identity

By focusing on the identity part of digital banking, banks can build strategies that put customers at the center. This starts with a robust digital ID verification process that verifies who the user is and authenticates their ID to provide them access to digital solutions. 

In Europe, and the UK, digital ID verification allows banks to provide their customers with digital solutions almost instantaneously. By focusing on digital customer identity, banks can speed up the onboarding process, prevent fraud and scale their business as per their needs.

Importance of Getting Identity Right

There’s a lot US banks can learn from banks in the EU. They build their digital banking strategies by keeping customers at the center. They know who their customers are and they can verify their customers in a digital-first banking environment. 

A modern approach to digital ID verification is combining a government-issued photo ID document (passport or driver’s license) with biometrics data (selfie, face scan, or fingerprints) to make a secure and seamless customer authentication process.

A recent study found that almost 60% of customers prefer to use biometrics data instead of using passwords that are a hassle to remember. By the end of 2025, 85% of all banks will be using biometrics data to verify and authenticate their customers instead of using passwords and OTPs.

How US Banks Can Move Forward In the Digital Banking Revolution?

Currently, the UK is the world leader when it comes to providing a secure and seamless digital banking experience. The United Kingdom also has a lower number of physical bank branches than the US, which forces them to build their digital banking landscape even better. To be successful in the digital banking revolution, banks shouldn’t compromise between security and seamless customer experience. With the ideal online ID verification and online document verification technology, banks don’t have to cut corners. 

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What is Open Banking, and How Will it Impact You?

impact of open banking

Open banking is pretty simple yet completely innovative, it lets you share your bank data with other companies with limited problems. Open banking APIs or the overall process is designed in a way that provides more security and reliability even while using basic financial services like Venmo or Robinhood. With the widespread adoption of open banking, you as a customer will be able to experience the best technologies without having to compromise for cheaper and less secure options. 

In the US financial market, Open Banking is just taking baby steps. But the UK market is leading the world in open banking-based financial products and services. For both banks and customers, open banking can open up new avenues and create opportunities for you and your money. Here’s everything you need to know about open banking and how it can affect your financial lifestyle.

What is Open Banking?

Open banking, also known as “open bank data.” is a financial practice that offers third-party financial service providers open access to consumers’ banking, transaction, and open financial data from banks and non-bank financial institutions, using application programming interfaces (APIs). Open banking will allow the networking of accounts and data across institutions to be used by consumers, financial institutions, and third-party service providers. Open banking is pushing innovation which can lead to the transformation of the banking industry. 

Here are the key factors for remembering open banking:

  • Open banking is a banking system that allows access and control of consumer banking and financial accounts by leveraging third-party applications. 
  • Open banking has the power to reshape the current level of competition in the banking industry and improve consumer experience tenfolds. 
  • Open banking can enhance the potential for both promising gains and financial risks as customer data is shared more widely and excessively. 

What’s New in Open Banking?

On 9th July 2021, the White House issued a statement in the favor of open banking. President Joe Biden issued an executive order which included a provision encouraging the Consumer Financial Protection Bureau (CFPB) to issue rules that allow customers to download their bank data and offer it to competitors. 

The CFPB is tasked to create regulations related to sharing and consumer financial account data online. Joe Biden’s encouragement to Open banking provides CFPB with the required push to boost the task that CFPB was already doing. 

In October, CFPB issued an advanced notice of proposed rulemaking, related to building regulations around consumer data sharing. CFPB, which had been focusing on the issue for several years, has collected customer feedback on customer data collection. New rules could still take years to implement. 

Years ago, the only way to keep track of the comings and goings of your money was through a monthly mailed bank statement and physical checkbooks. This process has now improved as customers can log into a mobile banking app or website to check on their finances and conduct all kinds of financial activities in one place. For the experience to work well, you need to hand over your keys to the digital portal, your bank account which then allows your app to grab the data for you. It’s also known as screen scraping, and it provides all the information available in your bank account to other companies. And obviously, it’s one of the least secure options available. 

Over the years, several banks have been accused of blocking companies from collecting data when you wish to share it with them. FinTech companies have often complained that banks and financial institutions are anti-competitive, while banks state that they’re just trying to protect their customers and their data from parties that can be a threat. 

Recently, the situation has changed and FinTechs and Banks have made arrangements for better data sharing among themselves. But there is still confusion if consumers are sharing enough data to support the open banking models.

What Will be The New Opportunities with Open Banking?

Open banking is meant to share customer data in a safer and more secure way compared to just handing over your login credentials to a third-party app, including other bank apps. All the data sharing happens behind the screen so you won’t notice it whenever you log into the bank app or conduct any normal financial activity.

The customer doesn’t have to do anything different, it’s just a newer and faster model of data sharing. Customers still have an app on the phone, the only thing that’s different is the level of security you get and you can be sure that your data is kept safe.

The ability to easily share your financial data with other companies is expected to boost innovation throughout all financial industries. It could also help more people get loans by verifying transaction history instead of checking credit scores. Open banking can also improve the mortgage application process, and reduce the time taken for approval of mortgages.

The widespread adoption of open banking can make huge changes in financial services. Open banking requires financial institutions to spend more money and rethink new ways of securing assets and customers’ data.

How Will Open Banking Affect Customers?

In the end, open banking is designed to make financial activities simpler for you to switch lenders and use tons of FinTech apps. Whether it’s access to a cheaper type of credit, managing personal finance, or accessing better direct payments. There are tons of things that customers can do to make their money more automated and all of it revolves around customer data.

Here are some key points that open banking will improve:

  • Increasing access to financial services
  • Saving time from opening an account or taking out a loan
  • Offering better products and services

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How Do Mortgage Lenders Check & Verify Bank Statements?

how do mortgage lenders verify bank statements

If you seek a mortgage for buying a new home or for refurbishing, it has to be approved by a mortgage lender for you to get your loan. One of the major factors involved in loan approval is the verification of the borrower’s financial information, but how do mortgage lenders verify bank statements for loan approval?

Banks and other financial institutions may demand a “proof of verification deposit” form to be filled in and sent to the borrower’s bank for process completion. A proof of deposit may also require the borrower to provide a minimum of 2 consecutive months’ bank statements. During the loan approval process, if you’ve ever wondered “why is verification of bank statements for mortgages required?” the answer is to reduce the chances of people with fake documents acquiring funds for illegal activities.

With thousands of sophisticated technologies out there, it doesn’t take more than minutes to forge bank statements and other documents. Keeping this in mind, mortgage lenders are legally obligated to identify and authenticate bank statements.

In recent years, there have been multiple instances where mortgage lenders have been scammed out of their money with fake bank statements. To save themselves from such cases of financial fraud, mortgage leaders need to find ways to check and verify bank statements.

Understanding How to Verify Bank Statements?

To approve a mortgage application, mortgage lenders need to verify a series of details. These include current income, assets, savings, and borrowers’ creditworthiness.

During the process of applying for a mortgage for a property purchase, the lender can and will ask the borrower for proof of deposit on the property. The lender then is asked to verify that the funds required for the home purchase have been transferred to a bank account and are now can be accessed by the borrower.

Proof of deposit is the only way for a mortgage lender to verify if any sort of transaction has taken place before applying for the mortgage. Proof of deposit serves another purpose for the lender. Using the proof of deposit, the mortgage company can verify if the borrower has enough funds in their account to make a downpayment. If they have insufficient funds, it’s generally considered a red flag during the lending verification.

Usually, a borrower pays a 20% down payment for the home. If the full cost of the home is $200,000 then the borrower will need to pay $40,00 upfront. The lender has to verify if the borrower has enough in their account to make the closing costs that are included in a new mortgage. 

The borrower has to provide the lender with the two most recent bank statements to confirm they have enough money for a downpayment. The mortgage company then reaches out to the borrower’s bank to verify if the information available on the bank statement is authentic or not. This is one of the most common ways how to verify bank statements during mortgage approval. The digital age has made it easier for fraudsters to fabricate fake bank statements and documents which can be hard to distinguish from original statements.

Types of Documents in Mortgage For Verification

A lender has to submit a POD (proof of deposit) form to a bank to receive the confirmation of the loan applicant’s financial information. There are other ways a lender can verify if the borrower’s financial information is authentic or not. Although the document required for verification can differ from bank to bank. Here are the most common types of documents in mortgage approval:

  • Account number
  • Account type
  • Open or closed status and opening date
  • Account holder names (these are the official owners of the account)
  • Balance information. (Including current account balance, account balance over two months/periods, or average bank account balance)
  • Account closing date and the balance at the closing time (if required).

A lender has the right to refuse a mortgage if the documents don’t satisfy the verification requirements.

Why Verification of Bank Statements Is Needed?

Why do mortgage lenders need bank statements? To reduce the risk of the use of acquired funds by the borrower for illegal activities such as terrorist funding or money laundering. Lenders have the right to ask for a borrower’s bank statements and seek POD from the bank, some cautious lenders can ask for both of them. Lenders use POD and bank statements to ensure that the person is eligible for a mortgage.

Some lenders tend to ignore a once-in-a-lifetime overdraft on the borrower’s account during the account history verification. Although if a consumer has numerous overdrafts then giving a loan to consumers may be considered a risk for the bank.

Importance of Frictionless Lending Process in Banking

Removing friction from the lending process has been one of the biggest challenges for banks. The latest report suggests that banks that have been using digital methods for lending have seen better customer-business relationships.

Digital methods can help banks address the pain points customers face during their lending journey.

The banking industry has seen an upward growth toward digital adoption in the past 5 years. But, the lending industry has been left fairly untouched till now.

Consumers want the same level of convenience while lending as they get with other parts of their financial journey. Banks can do a lot of things to make sure that the lending experience is as seamless as possible.

How Banks Can Make Lending Frictionless?

FinTechs all over the world are offering incredible solutions that banks can leverage. Take DIRO’s online document verification solution, for example. It can cut down the customer verification time by more than 70%.

100% proof of verification combined with reduced time can lead to a great customer experience. Here are some things that financial institutions can do to reduce friction in lending:

1. Keep a Customer-Centric Approach

More and more customers are moving to digital banking channels. Banks have quickly transformed to keep up with demands. Most customers want all their borrowing data in a single place, especially if they trust their bank. 

More than anything, a customer wants convenience and a time-saving process. Banks need to do more than just build an online lending application. If the process is too complicated, or way too long, then customers won’t fill it. 

A financial institution’s approach should be focused on making a customer’s journey easy. 

2. Make Use of Established Trust

While FinTechs offer better options, more control, and flexibility, customers are more likely to approach a bank for borrowing. The reason is simple, banks have a better reputation than newly set-up FinTechs.

Over 40% of customers would always choose their bank for borrowing, 27% are not sure, and others may incline toward FinTechs. This data comes from a report conducted by DepositAccounts. 

Financial institutions should look forward to leveraging their reputation while working with consumers. They can use their existing platforms, integrate the latest tech into them and make them more consumer-friendly. 

The rest of the stuff is what banks have been doing for years, I.e., compliance, customer financial health management, mitigating credit risks, and more. 

3. Leverage Technologies

As customers want convenience, there’s nothing better than using technology. To build a frictionless lending experience, financial institutions need to focus on building a flexible, cloud-based platform that can support all kinds of integrations. 

Using open banking APIs allows banks to merge all the sections of the process into a single platform. Without these technological advancements, banks will be left behind in the past while FinTechs win the race.

If a financial institution can implement these strategies, it’ll be able to offer its customers what they want.

How does DIRO Verifies Bank Account Statements?

As we mentioned above, it is getting easier and easier to fabricate fake bank account statements. With DIRO, you can verify bank statements with automated user consent and secure impersonation checks anywhere across the globe. DIRO can verify all account information including bank statements. Banks, financial institutions, and FinTechs can verify these statements using the DIRO bank verification service.

DIRO’s incredible technology can verify any kind of bank document using simple steps. All a user has to do is log in and verify bank statements online on a secure browser. It facilitates improved user experience, reduces the risk of financial crime, and instant bank verification. 

That’s not all you can use DIRO’s document verification technology for, users can access and verify any kind of bank information from any web source. One of the major ways to verify bank accounts is by processing micro-deposits, DIRO’s technology reduces the account verification time from 3-5 business days to mere seconds.

Mortgage lenders, banks, financial institutions, and FinTechs can make use of the DIRO’s award-winning document verification technology to streamline their process of bank account and bank statement verification.