How AI and Open Banking Are Changing Lending for the Better

The advent of these new technologies in tandem with each other has made it easier for lenders to assess risk while making borrowing more accessible to customers.
Chirag ShahMay 5, 202312 min

The banking and lending industries have changed beyond recognition over the last 20 years. Moving away from the traditional high street bricks and mortar branch model, now almost everything is done online. 

The transition has been powered by the digitalization and automation of key processes, such as payments and transfers. But thanks to the advent of artificial intelligence (AI) and open banking, it’s set to go a step further.

Such is its popularity, that 85% of IT executives in the banking industry have a clear strategy for adopting AI in the development of new products and services, according to a survey by the Economist Intelligence Unit. A separate study found that four in five senior banking executives believe unlocking the value from AI will distinguish the winners from the losers.

 Role of AI 

AI has become an invaluable tool in the credit sector over the last five to ten years. It enables lenders to more accurately assess borrowers’ risks, make swift decisions, improve portfolio management, and, when used alongside speech recognition software, provide real-time analysis of verbal customer contact, for compliance purposes. 

Above all, it reduces the time and effort needed to complete labor-intensive processes, at the same time as removing the potential for human error. That enables staff to focus instead on their core role of providing added value to customers.

The technology also allows for sales enablement prompts and improves fraud detection and the quality of feedback received. It has already been successfully implemented in other industries, so lending is the next logical step.

But AI is not without its problems. The issue of AI bias has been well documented in recent years, with multiple high-profile systems proving to be racist, sexist, or both, meaning it has the potential to be hugely damaging for users. 

But thanks to explainable AI, every decision-making process can be examined in more detail, thus lessening the chances of this happening. When closely monitored, the propensity for something to go wrong is therefore greatly reduced. 

Opening banking’s potential 

Another key component of this digital revolution is open banking. By providing greater transparency and enabling secure data sharing, it’s designed to enhance competition and lower banking costs for the customer, while also making it easier for lenders to better assess the creditworthiness of applicants and make decisions. 

Initially rolled out by Barclays, HSBC, and Lloyds in 2018, open banking has given customers greater control of their accounts and data, while simultaneously enabling lenders to view the behaviours of potential borrowers. That has meant, by partnering with technology providers, lenders and other parties such as financial advisors and brokers can more accurately evaluate each customer’s risks, as well as reach new borrowing markets.

Dual approach 

While, at first glance, AI and open banking may seem completely unrelated concepts, combined they are fundamentally changing the way that the lending industry works – for the better. That’s because, while open banking brings unparalleled access to vast swathes of customer data, without AI, analyzing that data would take a huge amount of time and resources, thus limiting the number of credit applications lenders can process, as well as their potential profitability.

Currently, AI and open banking are only being used in a small part of the finance industry. But, over time, they will ultimately influence how banking and lending evolve as they become more widely adopted.

Here at Nucleus Commercial Finance, our focus is on providing UK small to medium-sized enterprises with alternative funding options. To date, we have lent more than £2.8 billion to businesses across the UK to help them grow.
Chirag Shah, Chief Executive Officer, and Founder of Nucleus Commercial Finance

Chirag Shah launched Nucleus over 11 years ago with a mission to provide flexible funding solutions to the UK's economic backbone after realizing that businesses had very limited options beyond the much-known incumbent banks. He vowed to be at the helm of a fintech lender that doesn’t outright reject SME applications with little to no explanation, instead focusing on a more transparent approach. Through our AI-powered automated underwriting machine, we can tell customers why their loan applications were rejected and work closely with our introducer network to support clients in getting that all-important yes.

Chirag Shah


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