[UK] More inclusive credit scoring to overcome data access disconnect

A recent study has revealed that UK gig workers face financial exclusion as the result of a disconnect in data access experienced by banks and lenders, Finextra reports.

The research, from Rollee, shows that 70 per cent of UK gig workers have experienced challenges gaining approval for financial products. Among the surveyed gig workers, two-thirds (66 per cent) had loan denials despite their affordability, leading them to apply for an average of three credit cards or loans before approval. 

Housing is also impacted by the disconnect, with 34 per cent reportedly losing out on securing a new home despite financial affordability. The struggle to access financial services led to 80 per cent of gig workers feeling they lack equal access to financial services with traditional full-time workers. A disparity that caused financial stress and forced them to consider alternative employment options. 

The reason for this financial exclusion is reportedly the limited transparency of income and employment data for gig workers compared to their PAYE counterparts. Financial institutions acknowledge the limitations of their current risk assessment processes; 73 per cent stated an inability to see a complete picture of a gig worker's payments, income, and employment records. 

As a result, 34 per cent of financial institutions are reportedly more inclined to approve applications from PAYE workers, citing greater visibility into their income and employment details.  

Addressing the data disconnect

Independent workers annually contribute £20 billion to the UK economy and this is a growing workforce. Tackling these challenges is paramount for financial inclusivity and to enable financial institutions to service an expanding market.  

According to Finextra, the solution is to bridge the gap between the limited data currently available to assess credit risk and build a full picture of a worker's income, employment status, and activity records. A complete, holistic view of data ensures credit assessments consider both financial transactions and the capacity of gig workers to repay.

Data transparency

When trying to leverage alternative income and employment data, financial institutions often reportedly have to contend with the pitfalls of data integration. Attempts to leverage and integrate data from freelance platforms and HR software through public APIs in-house often throw up roadblocks and bottlenecks. Finextra says negotiations with platforms for access to private APIs can lead to refusals and scalability becomes a daunting challenge with the integration of multiple platforms. This method demands significant investments in resources from backend, data, and DevOps teams, hindering data-driven decision-making and growth. With the technological complexity of such an approach further limiting its effectiveness.

Open banking has reportedly shown promise in allowing the secure sharing of financial data, however, its focus on bank-based payment data remains a limitation. Financial institutions need seamless access to alternative data sources in real-time, achieved through automated connections to multiple income and employment platforms. Finextra advises that financial institutions need to focus on scaling up integration efforts across markets and regions made possible with an external API infrastructure.

The adoption of automation in consolidating and standardising data moves us beyond time-consuming manual processes and also simplifies the complexities faced by internal tech teams. Additionally, it empowers gig workers by giving them control over their data, allowing them to share financial ownership without relinquishing control of the data itself.  

Substantial investments in data infrastructure and an openness from financial institutions to change are needed before this transformation can be fully embraced. According to Finextra, bridging the data disconnect is the final frontier for open finance, essential for levelling the playing field for gig workers and appropriately recognising their economic contribution. 

Source: Finextra

A recent study has revealed that UK gig workers face financial exclusion as the result of a disconnect in data access experienced by banks and lenders, Finextra reports.

The research, from Rollee, shows that 70 per cent of UK gig workers have experienced challenges gaining approval for financial products. Among the surveyed gig workers, two-thirds (66 per cent) had loan denials despite their affordability, leading them to apply for an average of three credit cards or loans before approval. 

Housing is also impacted by the disconnect, with 34 per cent reportedly losing out on securing a new home despite financial affordability. The struggle to access financial services led to 80 per cent of gig workers feeling they lack equal access to financial services with traditional full-time workers. A disparity that caused financial stress and forced them to consider alternative employment options. 

The reason for this financial exclusion is reportedly the limited transparency of income and employment data for gig workers compared to their PAYE counterparts. Financial institutions acknowledge the limitations of their current risk assessment processes; 73 per cent stated an inability to see a complete picture of a gig worker's payments, income, and employment records. 

As a result, 34 per cent of financial institutions are reportedly more inclined to approve applications from PAYE workers, citing greater visibility into their income and employment details.  

Addressing the data disconnect

Independent workers annually contribute £20 billion to the UK economy and this is a growing workforce. Tackling these challenges is paramount for financial inclusivity and to enable financial institutions to service an expanding market.  

According to Finextra, the solution is to bridge the gap between the limited data currently available to assess credit risk and build a full picture of a worker's income, employment status, and activity records. A complete, holistic view of data ensures credit assessments consider both financial transactions and the capacity of gig workers to repay.

Data transparency

When trying to leverage alternative income and employment data, financial institutions often reportedly have to contend with the pitfalls of data integration. Attempts to leverage and integrate data from freelance platforms and HR software through public APIs in-house often throw up roadblocks and bottlenecks. Finextra says negotiations with platforms for access to private APIs can lead to refusals and scalability becomes a daunting challenge with the integration of multiple platforms. This method demands significant investments in resources from backend, data, and DevOps teams, hindering data-driven decision-making and growth. With the technological complexity of such an approach further limiting its effectiveness.

Open banking has reportedly shown promise in allowing the secure sharing of financial data, however, its focus on bank-based payment data remains a limitation. Financial institutions need seamless access to alternative data sources in real-time, achieved through automated connections to multiple income and employment platforms. Finextra advises that financial institutions need to focus on scaling up integration efforts across markets and regions made possible with an external API infrastructure.

The adoption of automation in consolidating and standardising data moves us beyond time-consuming manual processes and also simplifies the complexities faced by internal tech teams. Additionally, it empowers gig workers by giving them control over their data, allowing them to share financial ownership without relinquishing control of the data itself.  

Substantial investments in data infrastructure and an openness from financial institutions to change are needed before this transformation can be fully embraced. According to Finextra, bridging the data disconnect is the final frontier for open finance, essential for levelling the playing field for gig workers and appropriately recognising their economic contribution. 

Source: Finextra