Abound, a consumer lending startup based in the U.K., announced on Monday it raised a whopping $601 million in both debt and equity to fuel the “open banking” industry, according to TechCrunch. Funding will go towards expanding access to consumer credit and reaching more potential customers.
The platform, like other open banking startups, uses banking data siphoned from big banks’ APIs and builds new avenues for credit lending. Abound underwrites personal loans without the use of credit scores. Instead, it sifts through bank transactions and uses artificial intelligence to create risk profiles of each customer. By doing so, it can offer customers a lower interest rate than conventional loan lenders.
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Startups like these have the ability to help consumers access credit despite a bad credit score, or could even help them improve their credit scores.
The open banking revolution
Open banking had been around for quite a while in the form of budgeting apps and spending trackers like Mint, which would aggregate your banking data via APIs. But the world of open banking has grown to take on a larger role in the fintech world.
In 2018, the European Union established the European Union’s Payment Services Directive, an initiative that would require banks to make customer data more accessible to said customers via APIs.
Open banking platforms are heralded as usually being more intuitive to navigate than traditional banks. Without relying on credit scores, consumer lending platforms can offer a more personalized loan and loan repayment program.
As a result of the EU’s decision, consumer lending programs utilizing open banking technology have popped onto the scene. Tink, an open banking company based in Sweden, gives financial institutions access to data from payment apps like PayPal. Finicity, another platform based in Utah, connects disparate fintech platforms together to allow users better interoperability between each.
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