The Open Banking initiative will improve underwriting assessments, but could also result in higher consumer leverage, according to Moody's Investors Service.

“We think Open Banking will improve consumer risk assessments because widespread access to bank account details among all lenders will enable a clearer picture of affordability,” said Greg O'Reilly, vice president and senior analyst at the credit rating agency.

Information on borrowers’ real income and expenditure, such as actual - rather than estimated - inflows and outflows - like bills and subscriptions - will help to improve affordability estimates.

However, Moody’s noted that increasing data availability will encourage some lenders to enter into riskier areas of the consumer lending market, and these new lenders could encourage borrowers to overleverage.

This could result, longer-term, in weaker average consumer loan quality in some segments and in the event of a downturn, borrower defaults and losses would be higher than in a less indebted consumer market.

On 13 January this year, the Open Banking Implementation Entity began roll out of the reforms in the UK. This began with testing the largest account providers and regulated third parties, before moving to smaller financial institutions.

Open Banking is a secure set of technologies and standards that allow customers to give companies other than their bank or building society permission to securely access their accounts. This means customers can, if they choose, easily use services from a range of different types of regulated companies without the need to share credentials with any third parties.

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