Much like PropTech, Open Banking is a phrase that has been growing in prominence over the last few years. The aim of Open Banking, which has been around since 2015, is to make financial services more innovative and transparent while making the sector more competitive.
Open Banking has so far been very successful in the mortgage sector and has slowly started to become more widely adopted in the private rental sector (PRS).
Transparent financial services can help letting agents and landlords to provide a more streamlined service, while also providing tenants with better opportunities to manage their money and access new products.
Below, we take a closer look at the growing impact of Open Banking in the rental sector.
What is Open Banking?
Open Banking was set up by the Competition and Markets Authority (CMA) in association with the government. Its aim is to provide consumers and businesses with access to a wider choice of innovative products and to gain a better understanding of their finances through technology.
Consumers and businesses can now share their financial data with a range of apps, services and challenger banks. The information they provide could be bank statements, spending habits or regular payments. The key is that Open Banking users don't have to provide their login details to anyone other than their bank or building society.
One of the most common uses of Open Banking for consumers is allowing their bank to connect to budgeting apps which monitor their spending to give them a better understanding of their finances.
For businesses, Open Banking can help to provide a clearer picture of their accounts or connect to providers which can automate payment and reconciliation.
As of January 2020, it was reported that 202 providers had been approved by the Financial Conduct Authority (FCA) to provide Open Banking services.
How does Open Banking help agents and landlords?
Open Banking can create a more joined-up payment process as it allows letting agents and landlords to see who money belongs to, when it needs to be paid and who it needs to be paid to in real time.
What's more, it opens up the world of online banking, meaning agents no longer have to use BACS to manually process payments - this significantly speeds up the process and reduces the time property professionals have to spend on admin.
Payments and reconciliation can be automated through Open Banking, which is another way this technology is helping agents to become more efficient and provide a better service to landlords and tenants.
The margin for human error is also reduced if more payments are managed using online systems. Automation and streamlined processes have been adopted in many other parts of the lettings process, so there's no reason why the financial side of a lettings business shouldn't go the same way.
As well as the payment side of the business, Open Banking can also help agents to provide a more streamlined referencing process. By checking a tenant's income, past rent payments and rent affordability through bank statements, Open Banking can significantly speed up the screening process.
Not only that, but it reduces the amount of paperwork required and the amount of administration agents are required to carry out when organising a new tenancy. Agencies which offer a more seamless referencing process which can be carried out from a phone will be more appealing to modern renters and could influence their decision in a positive way.
If properties are let quicker, agents can spend more time on growing their business while their landlords will benefit from shorter void periods.
How does Open Banking help renters?
As with agents, renters can benefit from Open Banking by gaining access to a more streamlined referencing process with less paperwork. This can help them to provide their personal information quickly, putting themselves ahead of competing tenants.
The aim of most prospective tenants will be to secure their ideal property and move in as quickly as possible. Undertaking a screening process which is Open Banking-enabled gives them a better chance of achieving their goals with less hassle.
Due to the nature of Open Banking, renters now have more opportunity to share their financial details such as historic and current rental payments.
By allowing credit reference agencies access to records of their rent payments, tenants can improve their credit score without having to do any additional work.
For long-term tenants who are keen to purchase a property or gain finance for a large purchase in the future, improving their credit score could make all the difference.
Tenants can also benefit from Open Banking by gaining access to apps which help to compare banks, improve budgeting, search for credit or access a loan.
They can access these innovative services safe in the knowledge that their data is secure and all the providers they are dealing with have been approved by the FCA.
What does the future hold for Open Banking in the PRS?
As we can see, adoption of Open Banking in the rental sector is growing but there is plenty more progress to be made.
If more agencies use services via Open Banking, they can provide a more efficient service to customers and let properties quicker.
Meanwhile, tenants who embrace Open Banking can benefit from less paperwork, access to innovative services and gain a better understanding of their finances.
Over the coming years, as more providers become regulated by the FCA, the rental market will continue to benefit from a diverse range of new services and a faster, PropTech-led approach to financial processes.