Posted on 12 November 2024
Find out more at the Nuffield Code Encounters project launch event
A policy paper, authored by researchers at the University of York and the University of Bristol, shows that not many people know what Open Banking can mean in credit risk and affordability assessments when buying or renting a home.
The researchers are calling for more information to be shared with tenants and borrowers about Open Banking and how it can be used by landlords and mortgage lenders in making decisions about potential tenants or borrowers.
Open Banking allows people to share their banking transaction data with firms to verify payments have been made or to provide behavioural insights into a person’s income and spending.
Privacy intrusion
Researchers warn that Open Banking may benefit some people, but there is a risk of privacy intrusions and greater housing exclusion for others. For example, someone with a good salary may have large loans or a gambling habit and consequently have a lower affordability level than someone with a lower income who manages their finances well.
Open Banking also raises the prospect of identifying those with weak financial profiles, with irregular income or who are ‘getting by’ but are financially strained. The latest research raises debates about the limits of scrutiny for a critical service and how much of our lives we are willing or are now compelled to share.
The research indicated that analysis based on Open Banking could increase the likelihood of moral judgements being made about how frequently people spend, and on what the money is spent on.
Winners and losers
Uptake of new digital technology among mortgage lenders is currently limited as historic systems are expensive to adapt to the latest AI-informed analysis and processes, but its use is growing in the private rented sector and being considered by some social housing providers.
Dr Alison Wallace, from the University of York’s School of Business and Society, said: “There are some winners and losers as a result of these technologies. On the winning side are some young people and those new to the country, as Open Banking can overcome problems of ‘thin credit files’ - people with little financial history that landlords , agents or lenders typically find difficult to assess.
“Those who may lose out, could be those who have a higher income profile but manage their finances poorly, or the technology may reinforce existing inequalities, exposing those with insecure incomes, those just scraping by, or with spending patterns that some may question, such as gambling.
“In our study we found that renters and mortgage borrowers viewed this technology as convenient but often intrusive, as it reveals things in their lives that they were uncomfortable sharing. You can tell a huge amount about a person from their banking transactions, beyond their ability to pay their rent.”
Equality legislation
The research found that some people opted into Open Banking as they were unaware an opt-out was permitted, or because there was a fear of losing out on a home if they didn’t give consent.
Researchers are also advising that firms ensure compliance with data protection and equalities legislation, to support the use and appropriate interpretation of data. Models may learn patterns of financial risk indicators that directly or indirectly conflict with regulation.
Greater scrutiny
Dr Wallace said: “With this level of data, we run the risk of reinforcing societal inequalities and allowing varying levels of judgement about what constitutes ‘normal’ and ‘unnecessary’ spending.
"People need to be more aware that how they manage their money, and their digital profiles, will come under much greater scrutiny with these new and emerging technologies. We need greater public understanding of how we present our digital selves, much as we have learned to manage our credit scores.
“These technologies are in their infancy but are being rolled out across the housing sector to make inferences about people’s income and expenditure. These AI technologies hold the promise of greater accuracy on who can afford to pay their rent or mortgage, and do this quickly, but while benefiting some, runs the risk of exposing others to greater housing exclusion.
“There needs to be greater public awareness and understanding of what our bank accounts tell people and firms need to consider context, and where possible set human biases aside.”
All research reports and policy briefings are available from the Code Encounters project website.
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