By Blake Richmond, MD of Referencing, Goodlord

2022 marks exactly five years since the launch of the Open Banking API Specifications. At the time, words like “open” and “accessible” were not things that anyone wanted to hear when it came to their bank’s security.

While open banking promised better customer experiences, many security professionals, bankers and financial institutions were extremely cautious of the idea. As is so often the case with financial innovations, nobody wanted to be the first canary in the coalmine.

Today, the industry has almost entirely flipped. To avoid open banking is to limit your own security, lessen your ability to spot and stop financial fraud, and damage your customers’ experiences.

With all major banks and many smaller financial institutions using open banking (through choice or regulation), in 2022 the technology is now starting to expand into new and previously unseen markets.

The lettings industry — An open opportunity

The UK rental market is big business, worth an estimated £1.4 trillion. With so much money on the table, the rise of fraudsters has been an unfortunate inevitability.

While some of this takes the form of scams and traditional financial fraud, tenancy fraud is also on the rise. Following the coronavirus pandemic, Brexit, and the cost-of-living crisis, many UK citizens have found themselves in a challenging financial position. Sadly, this has led to a steep rise in fraudulent applications for rental properties.

In the majority of cases, this sort of tenancy fraud involves providing false or doctored identification, right to rent checks, income statements, or employer references.

According to the latest data, tenancy fraud increased by 71% between the second half of 2020 and the first half of 2021. Faced with this rise, landlords and estate agents are trialling new technologies to spot and stop fraudsters — with open banking leading the charge.

Stopping fraud before it starts

In 2022, open banking has proved an essential tool for stopping fraud before it even begins.

According to rental technology platform Goodlord, one in five applicants highlighted as fraudulent by its anti-fraud technology are confirmed as fraudulent by a specialist team. If it weren’t for the latest anti-fraud technologies, this could have cost landlords an estimated £1 million.

While significant investment has gone into new ‘RentTech’ designed to spot fraud, by far the most effective solution has simply been to cut it off at the source.

By using open banking to verify tenants’ incomes, estate agents and landlords can now confirm a tenant’s salary information or previous rent payment records, directly with their bank.

This not only speeds up the financial checking process for renters, but also provides a system that cannot be fraudulently manipulated. Where paper statements or PDF pay slips can be easily edited or falsified, open banking leaves no room for fraud.

Better security, better experiences

This move to open banking is proving hugely beneficial in providing agents, landlords and tenants with peace of mind. In fact, Goodlord’s industry data shows that letting agents using open banking over the last year were able to ensure that not a single fraudster fooled the system.

But it’s not just about security. By presenting a fully transparent picture of a renter’s income, open banking also paves the way for a far simpler and quicker referencing process for tenants.

Up until now, this process has been an arduous task for both tenants and landlords, requiring applicants to supply huge volumes of paperwork to prove their income. In the UK, it’s not unusual for estate agents to require several months’ worth of bank statements, letters from past employers, and even references from previous landlords. With open banking all of this is either reduced or cut out entirely.

Just the beginning…

Like banking five years ago, the lettings industry is undergoing a digital transformation. A new wave of RentTech start-ups are disrupting the market, using innovative tools like AI and open banking to shake up a once paper-based industry.

And this is only the beginning.

Additional financial elements of the lettings industry such as rent collection could also be on the verge of an evolution, with landlords set to one day move beyond cash, credit cards and bank transfers towards instant rental payments.

Only time will tell how these new innovations will help to fight fraud and deliver a better financial experience for renters. But whatever the future looks like, open banking will sit at its heart.