Payl8r calls for open banking to be legally required for credit assessing

‘Buy now, pay later’ (BNPL) finance firm Payl8r is calling for open banking to be adopted as a legal requirement for credit assessment.

The company has said it should be required as it is for credit checks to ensure safer lending as the cost of living crisis worsens.

The lender already uses open banking at the point of application, and is urging other BNPL providers such as Klarna,Clearpay and LayBuy to do the same.

“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,” Payl8r managing director Sam Fogerty said.

“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.”

Payl8r uses open banking for credit assessments for all returning customers and says it aims to reassess the customer over the course of their loan.

It currently uses it on 60 per cent of new customers, with the aim of raising this to 80 per cent, but it cannot do this until other lenders adopt the same model, Fogerty said.

“As the innovators, fintech BNPLs should be doing everything in their power to improve financial wellbeing and help consumers manage their money, pay off debt, spread costs, improve credit scores and correct credit misuse,” she added.

The BNPL, which has been regulated since it launched, said it believes other lenders may not be using open banking because the more accurate overview of a consumer’s financial situation and risk level it offers could mean having to turn down potential borrowers who do not fit the tougher criteria.

“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,” Fogerty said.

“An individual’s creditworthiness shouldn’t be judged on their past performance alone. It’s an altogether more accurate and responsible way to lend.”

Once more firms adopt open banking technology, the firm is aiming to use it on 100 per cent of its 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,” Fogerty said.

The Financial Conduct Authority sent a letter to more than 3,500 firms last week, including retail banks and credit firms, urging them to give more support to all borrowers, including those suffering as a result of the rising cost of living.