While industries like finance, retail and healthcare have been largely revolutionized by technology, it’s no secret the property industry has been slow off the blocks when it comes to innovation and change. It’s not that the industry has remained untouched by technology, but so far innovation has been more aggressively adopted in certain sectors, particularly large landlords and forward-thinking property managers. There are many shared tools and no shared standards. The result? A lot of wasted time and frustration for all parties.
One way that the property industry can further harness technology is with the increasingly popular idea of open banking. Open banking is a service that provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions. When considering how it works, it’s vital to realize open banking is not limited to financial services. By using an application programming interface, it provides a seamless, digital alternative to the way the property industry currently vets tenants. For the property sector, open banking brings with it the opportunity to re-set the precedent of incoherence that has been established by traditional processes. For example, currently landlords have to seek and wait for paperwork such as bank statements and proof of previous addresses to be collated and sent by the renter. They then filter through the documents and assess their validity. This changes with open banking, renters’ financial resilience is at the heart of the process and they too have less repetitive admin, and the entire process is more transparent for all parties.
The bigger picture of what open-banking in the property industry means on a global scale is important as well. Renters, especially those without established credit ratings, will be better able to qualify for rentals. The will also have greater social mobility across different countries, without the need to open up country-specific bank accounts.
Excitingly for agents and landlords, open banking means they have access to prospective tenant’s affordability, credit assessment and historical financial data, allowing them to quickly make decisions on a tenancy. At my company Canopy, we have recently developed our open banking tool, powered by Experian and now Plaid, which allows renters to build a comprehensive portable digital rental history in the U.K market.
Unlike most technology that has exclusively assisted property managers or landlords in the past, open banking helps renters as well, and put them at the centre of the process. For the first time, consumers’ rental payments can be used to count towards their credit rating, boosting their financial resilience and helping those who have traditionally been locked out of the financial market.
The open banking movement is now getting more of a push from regulation in Europe. On January 20th the UK’s largest current account providers had to launch their open banking initiatives according to the PSD2 schedule. European banks were required to have implemented facilities so that third party providers could test their functionality against a simulated bank environment. But, while regulations have been imposed, ultimately open banking has become about expanding consumer choice when it comes to any kind of financial services and this extends to rental payments, mortgages and any other property related payments.
Open banking has the potential to positively impact the lives of millions of renters. From the renter’s perspective it educates them about expenses tied to a rental property and encourages them to make choices that will help save towards their financial goals. For landlords it delivers great transparency and accessibility to financial information. With bank statements and rent payment history readily accessible, they can check renter suitability quickly and efficiently. It is time for a property industry metamorphosis with open banking as the catalyst. I predict that this phenomenon will continue to take off in the property industry as landlords and property managers realize the importance and appeal of open banking to save themselves time and hassle and, for the first time, put renters’ financial resilience at the heart of the process.