Buy now, pay later (BNPL) finance firm, Payl8r, has called for the adoption of open banking as a legal requirement for credit assessing.

Payl8r suggested that if open banking was to be used in the same legal way that credit checks are, it could ensure safer lending for borrowers in the face of the rising cost of living.

Open banking technology connects banks, third parties and technical providers and enables them to exchange data securely to the benefit of the customer, as well as provides vital information to ascertain whether they can afford a loan.

Payl8r is now urging other BNPL providers such as Klarna, Clearpay and LayBuy to adopt open banking.

The firm believes that other lenders may not currently be using the technology because of the more accurate picture of a consumer’s financial situation and risk level it offers, which could mean having to turn down potential borrowers who do not fit the more stringent criteria.

“Our fellow fintechs have a duty to ‘do things differently’ and drive the financial services sector to do better, challenging the way banks and other institutions have operated for years,” said Payl8r managing director, Sam Fogerty.

“Use of credit reference agencies alone is an example of this, especially when open banking enabled approaches are at our fingertips and give us essential insights and guidance to assess individuals’ affordability. As the innovators, fintech BNPLs should be doing everything in their power to improve financial wellbeing and help consumers manage their money, pay off debt, spread costs, improve credit scores and correct credit misuse.

“I can understand a level of nervousness towards adopting open banking technology but what it takes away by shining a light on an individual’s affordability, it also gives back by finding customers that would previously have been turned down. An individual’s credit worthiness shouldn’t be judged on their past performance alone. It’s an altogether more accurate and responsible way to lend.”

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