Why is open banking important in lettings?

Open banking has potential applications across many industries – not least in lettings. Here is how this secure online solution can help estate agents and letting agents.

The growth in open banking opportunities comes at the right time for letting agents. Landlord costs are rising, with increasing legislation to comply with, changing customer expectations in a post-pandemic world.

Little improvements to the lettings process can go a long way and open banking for renting can offer a more seamless and fast service, to help keep landlords and tenants happy.

What is open banking?

Open banking securely opened up banking data (such as transactions, credit cards, loans, etc.) to authorised third parties.

These third parties have to go through a detailed due diligence process to get regulatory permission from the Financial Conduct Authority (or European equivalent).

With the permission of the bank account holder, these third parties can help consumers to make better decisions about their finances and to manage their money more easily.

Account holders have to opt into the scheme and only relevant data is securely shared.

How can open banking help agents?

Open banking can simplify the financial checks involved in tenant referencing.

The traditional process is time-consuming for tenants, costly for landlords, and all of the above for the letting agents who manage the process.

Conventional financial checks juggle lots of documents, from tenants’ payslips and bank statements to letters to prove employment.

With open banking, letting agents can get a snapshot of their tenant’s financial behaviour based on their income and rental payment history directly from their bank, with the tenant’s permission – accurately and securely.

Some referencing providers, such as Goodlord and Vouch, already use open banking as a way for tenants or guarantors to verify their income. It’s instant and can help speed up a referencing application significantly.

The tenant can skip the faff of collecting all the documents themselves – and letting agents can cut down the amount of paperwork that they have to keep track of.

How has open banking helped with data security? 

This digitisation of the process has the added bonus of helping letting agents stay compliant with the General Data Protection Regulation (GDPR).

The automated experience will limit any human errors, so agents know that they have accurate information, and they can reduce the back office costs normally associated with the traditional, lengthy referencing process.

The well-rounded tenant profile provided in this transparent sharing of data is also better for letting agents and their landlords.

The risk of rent arrears is reduced and the tenant can sign the contract and send payment much faster, reducing void periods – and keeping the landlord happy.

The future of open banking

The open banking ecosystem has developed rapidly and brought benefits to millions of consumers and businesses. With more than 6.5 million consumers and small-medium businesses already making use of open banking-enabled products and services, future additions to the ecosystem are already in development. Open banking could even make rent payments easier in the future.