As Brits look set to encounter challenges when using retail credit during the Christmas season, data and payments fintech Moneyhub has revealed how open banking can help lenders and retailers better serve customers and manage lending risks.
Around two-thirds of Brits have used or plan to use retail credit during the Christmas period, according to Moneyhub’s new Christmas Retail Credit Report. On average, these consumers spend £1,012.55 over the holidays, with £759.71 of this (nearly three-quarters) financed through retail credit.
Retail credit includes credit offered by retailers or banks that enables consumers to purchase items and pay for them later through a store credit card, BNPL plans, or instalment payment options.
Around 64 per cent of consumers struggle to repay this credit, leaving many burdened with new debt as they enter the new year. Nearly a third (28 per cent) of credit-using Brits have fallen into collections or arrears on purchases made for Christmas. To repay what they owe in the new year, 53 per cent of those who struggled with repayments cut back on spending, while 24 per cent take on extra work, and 16 per cent sell items.
“For many people, the excitement of holiday spending can quickly become the stress of managing repayments in the new year,” said Suzanne Homewood, managing director of decisioning at Moneyhub. “New regulations such as the FCA‘s Consumer Duty, and the upcoming BNPL rules, have made it clear to firms that they need to do more to understand their customers’ financial situation, not just at application, but throughout the term of their loan.”
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While these findings paint a dire picture for many, Moneyhub’s report also details how open banking can improve the situation.
Traditional credit checks are quickly becoming outdated and have emerged as unfair to many, due to a reliance on averages and biases. These checks also often lack the granular, real-time insights into income and expenses that lenders need to assess customers fairly.
However, Moneyhub explains that open banking technology has simplified lenders’ ability to access customer’s financial data. Open banking rules enable consumers to easily grant access to licenced providers to view their financial data.
“Customers no longer want to be treated as a cohort, expecting instead for decisions to be made ‘about me,’ rather than ‘people like me’,” explains Homewood. “Open banking provides data that can create detailed insights into an individual’s real-time income and spending. This enables lenders to evaluate customers more fairly as individuals, ensuring that those who can repay have access to credit, while also protecting vulnerable customers from falling into debt.
“Open banking is not just good news for lenders either. By elevating customer experience and refining credit assessments, the use of open banking helps retailers foster stronger brand loyalty. When lenders and retailers work together to offer a more personalised approach to credit decisions, they not only elevate the shopping experience and reduce lending risks but also help retailers meet consumer demand safely.”
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