How does Open Banking simplify Income Verification?

The open banking industry has been growing rapidly over the last couple of years.  This solution allows banks and other financially regulated institutions to access customers' financial data easier than ever before. 

Bartosz Sajewski

The open banking industry has been growing rapidly over the last couple of years. 

This solution allows banks and other financially regulated institutions to access customers' financial data easier than ever before. 

Open banking framework is helpful for a number of services, especially those that need to deal with income verification to assess financial data. In this article, we will tell you all about the role of open banking in simplifying the lengthy process of income verification. 

What is Open Banking and how does it work?

Open banking is a process of enabling third-party payment services and providers to easily access consumer banking information, such as transactions, payment history, etc. This procedure is happening through the use of application programming interfaces (APIs).

The way it works is simple. Open banking technology heavily relies on APIs, which is a structured way for one program to offer services to another program. This way, it is easier for different software to share information with each other.

Have a look at the more in-depth article from us about Open Banking. (Link to the open banking article here)

The core benefits of open banking include convenience, transparency, and more control over improving personal finances. The system, in general, provides great visibility, control, and timely financial advice to the customers. 

That’s why the open banking framework is being used in many different industries to make the overall experience more smooth, secure, and reliable. 

What is income verification?

Income verification refers to the framework that protects both businesses and consumers. 

Generally, when we talk about income verification, the first thing people think of is getting a loan. This is where the most misconceptions happen. It isn’t only lenders who use income verification, but this process goes beyond that. 

For example, landlords and property rental services mostly require proof of income to be sure that the tenant is able to pay the rent. This framework is also actively used by investment brokers to provide a better service to their customers. 

Checking and verifying potential customers’ income is a sustainable business practice because it helps to assess risks fully. Moreover, it reduces the risk of lending the money to people that are unable to pay it back. 

This process benefits customers as well. It helps them protect themselves from getting into a situation where they can’t keep up with expenses and can’t afford to pay rent. 

Income verification is a very straightforward process. It refers to verifying income over some period of time. But this process is not always easy, and it needs some simplification. 

Why does income verification need simplifying?

Some time ago, it used to be a common practice that renting an apartment or getting a loan was connected to filling out a bunch of paperwork with bank statements, current payslips, and tax return statements. You should have waited for weeks to get an answer once everything was verified. 

These processes came with lots of problems. First of all, the received information was not showing the complete picture of bank statements. It would only display taxable income but not tipped income or regular deposits. 

Also, it was very inconvenient for both businesses and customers. For example, today, people expect a frictionless and seamless digital experience. Almost every service is moving online, and the digitalization process happens fast. 

That’s why it was necessary to introduce new solutions to the world of income verification and authentication in general. 

How does Open Banking remove friction?

Thanks to the Open Banking framework, the barriers associated with verification services have fallen drastically over the last couple of years. Customers don’t have to wait for days and weeks to complete their income verification anymore. This process takes seconds now.

Customers don’t have to deal with the stack of papers anymore. Instead, they can connect to their bank accounts and securely share data, which is helpful for the bank to make a final decision. Banks, on the other hand, can almost instantly make decisions.  

This process makes everything easier for businesses and customers because it saves a lot of time and removes unnecessary friction from this process. 

How can customers take advantage of Open Banking?

Open Banking helps people go through their banking procedures more efficiently. Here are the three main advantages they take using this service:

  • Instant Income Verification

With the help of open banking systems, lenders can instantly verify income from a user’s bank account. The process happens based on real-time transaction data. It just takes a few clicks to get it done. 

  • Simpler Customer Onboarding

By using Open Banking, service providers can get information like name, account number, and ID number directly from the bank account. This is especially important when we talk about safe onboarding and KYC. 

  • More efficient invoice settlement

It is easier now for customers to share their account information with the help of open banking. This helps them to make the invoice settlement process more efficient. The whole data is fetched and automatically populated in this case.  

Open banking security. How safe is your data?

Common practice shows that open banking is as safe as digital banking. 

The framework is backed by API technology, which was designed to make the access, transfer, and manage information more securely. API access is secured by the industry standards called PSD2. This requires technical authorization, authentication, and consent. 

In addition, open banking requires integration with Identity and Access Management (IAM), a primary layer of security that fortifies the data.

Income Verification in the era of Open Banking

Income verification is one of the most important procedures that a bank, financial institution, or lender conducts before giving out a loan. This process is essential for everyone starting from small online lenders all the way through large retail banks.

The goal is to use income information to understand the current state of the customer and make a proper decision about giving out a loan. Open banking can make this process way more accessible than before—no need to deal with an extensive set of documentation anymore.

Here at TransactionLink, we build a one-stop shop to help you build FinTech solutions. We offer an open banking solution that allows you to confirm your users’ identities and learn their personal information.

We help you confirm that your users have bank accounts and get information on all of their transactions from the past three months. You can later access this data through our API and use it to create your products and services. 

Have a look at our AppStore and learn more about the products we offer to fuel innovation and assist in creating innovative solutions in the ever-growing FinTech industry.

Table of content

  • What is Open Banking and how does it work?
  • What is income verification?
  • Why does income verification need simplifying?
  • How does Open Banking remove friction?
  • How can customers take advantage of Open Banking?
  • Open banking security. How safe is your data?
  • Income Verification in the era of Open Banking
Bartosz Sajewski