Applying for a loan is a prime example of how customers now prefer to conduct their financial transactions online. In many cases, the word ‘online’ is just an empty promise since many steps in the application process are anything but digital. The endless piles of paper begin to mount when the bank begins to perform the credit check.
Salary slips, account statements and much more: scanning, uploading and reviewing paper documents not only creates uncesssary work, it is also a complete conversion killer from the provider’s perspective. If you advertise online loans and then only deliver a semi-digital customer experience, you have to be prepared for significant repercussions on the conversion rate. In this blog post, we’ll show you three examples to illustrate how banks and FinTechs use Account Information Services to boost their conversion rate for financial transactions.
Account Information Services Digitalise Paperwork
Account Information Services (AISP) access the account holder’s online account upon request and categorise information that is relevant for a credit check needed for a loan decision. Instead of struggling through piles of paper documents, the lender receives all the information they need to assess creditworthiness at the touch of a button.
Online loan providers that make the application process a completely digital customer experience reap the benefits of higher completion rates and satisfied customers.
From a technical point of view, Access to Account (XS2A) is made possible via banking APIs. The enforcement of PSD2 now means that financial institutions have to provide these APIs to third-party providers. As a result, banking APIs are now an important prerequisite to ensure improvements in financial transactions. Do you want to familiarise yourself with API banking first? If so, we recommend that you read the following blog post before carrying on here: The Basics of API Banking: What Every Bank Manager Should Know About Banking APIs!
Bid farewell to paperwork: loan applications, account switches and factoring can be digitalised using Account Information Services.
In the following paragraphs we present three application examples that can be digitalised using Account Information Services. In all three cases, customers reap the benefits of a seamless online experience without the hassle of paperwork. Banks and FinTechs can enjoy higher conversion rates while simultaneously digitalising and automating many manual steps.
Account Information Services and API banking are dramatically changing the financial and online world. In our white paper “Banking API: The Interface for the Future”, we introduce you to new business models and technologies. Download our free white paper today!
Example One: Online Loan Application
When it comes to granting loans, the legislator obliges financial institutions to carefully examine the applicant’s financial circumstances. To this end, banks request numerous documents such as salary slips, account statements and rental contracts. Customers submitting an application transfer the scanned documents using an online form. It can often take several days for the financial institution to examine the case - welcome to the widely-used loan application process on the internet!
The problem from the providers’ perspective: Far too many customers cancel the process because scanning and uploading evidence of creditworthiness is too complicated or customers do not have all the information at hand. Market research firm Hitwise discovered that the conversion rate even with “digital” vendors is still the single-digit percentage range. You can read more about the conversion path for loan applications in the Hitwise blog post Closing the Loan Conversion Funnel.
Account Information Services replace manual, paper-based process steps:
- A customer grants a certified Account Information Service Provider (AISP) access to their online account.
- The AISP analyses and categorises the transaction data in the online account and compiles the relevant information in an expenditure account.
- The lender receives the information in real time and can make a loan decision in no time at all.
- The customer receives immediate feedback and does not have to wait endlessly for approval of the loan.
FinTecSystems offers Account Information Services and supports SKG BANK, among others, in the implementation of a digital loan application process. With our Open Banking platform, loan applicants can carry out the online account check for credit checks in a fully digital and paperless manner.
You can find further details in the following case study: SKG BANK – The Digital Account Check as the Basis for the Loan Decision
Example Two: Online Account Switching Service
Anyone who has ever switched their account is all too familiar with the consequences of such a decision. Not only must existing business partners be informed of the new bank details, but standing orders and direct debits must also be set up on the new account. This means that an account switch can very quickly become a task that eats up precious time in your week.
It is not surprising that customers remain reluctant to switch accounts. In its study entitled “Bank switching and the use of account switching services”, the Association of German Banks discovered that two-thirds of bank customers have never changed financial institutions. A third have done it at least once, but only seven percent in the last three years. And all this despite the fact that the legislator created the conditions for a simple account switch in 2016 thanks to the statutory account switching service.
With the help of Account Information Services, banks can offer potential new customers a service that enables them to move their old direct debits and standing orders to the new bank in just a matter of minutes:
- The customer enters their login details for the online banking of the old bank on a form provided by an AISP.
- The customer logs in using their old access data and gives the AISP consent to transfer the data.
- The customer’s regular payment partners are determined on the basis of the account transactions that occurred in previous months.
- The new bank can then inform the business partners about the account switch upon the customer’s request.
- The customer checks all the data again and confirms the request by providing their digital signature.
The new bank then informs all business partners of the new bank details and sets up existing standing orders and direct debits for the new account. This way, the account switch only takes a few minutes, which makes it easier for the customer to make the decision to switch and increases the conversion rate for an account switch.
Application examples such as the ones described here can be implemented using the Open Banking platform provided by FinTecSystems. Banks and FinTechs can access customers’ bank accounts via the banking API to retrieve account information, balances and transactions. Learn more about this on our Open Banking page.
Example Three: Online Factoring
It’s well known that freelancers and small entrepreneurs often find it difficult to get a loan. While large companies have an abundance of financing options at their disposal, self-employed entrepreneurs have limited options. Specialised factoring providers have identified this gap in the market and offer factoring for outstanding invoices. In concrete terms, this means they buy submitted invoices.
This enables freelancers and small entrepreneurs to optimise their cash flow. However, the prerequisite for a factoring commitment is that the applicant has a solid credit rating. For factoring providers, it is of paramount importance that repayment of the pre-financed invoice amount can be guaranteed with a high degree of probability. In order to examine the applicant’s financial situation, a great deal of information is required which can lead to red tape and thus render the factoring service unattractive.
Factoring providers can rely on Account Information Services in order to achieve higher conversion rates:
- Freelancers and small entrepreneurs who apply for factoring upload their invoices on the factoring provider’s online portal.
- The factoring provider uses the Account Information Service to verify whether the applicant is actually the account holder - in real time and completely digitally.
- At the same time, the Account Information Service provides important information that is relevant for a reliable credit rating, such as current cash flow and customer payment behaviour. This enables the factoring provider to better assess the risk of a possible default.
- The provider then checks the invoice and transfers the factoring amount to the applicant’s account within a few hours.
- At the request of the applicant, the factoring provider can even take over the complete management of invoices, including the initiation of dunning procedures.
The FinTech start-up decimo supports self-employed people in the area of factoring and relies on the Open Banking platform provided by FinTecSystems. Thanks to account holder verification, decimo has a solid basis for precise scoring and can offer its customers attractive conditions.
You can find further details in this case study: decimo – Real-time account holder verification via XS2A
Are you a bank, FinTech company or factoring provider that wants to optimise conversion rates for online financial transactions? We will give you advice you free of charge and without obligation regarding the possibilities afforded by Account Information Services and our Open Banking platform.