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How real estate uses open banking

Antonis Kazoulis
Written by

Last editedMay 20233 min read

Thanks to open banking and the ease of access to current and accurate financial data, real estate investment opportunities have the potential to break new ground. The sector can benefit by increasing approval rates and improving matches between prospective buyers and properties. 

How open banking is revolutionising real estate

One of the core open banking benefits is how easily organisations, businesses, and landlords can create a “risk score” for clients. Current credit scoring systems can only showcase data that is six months old, and it’s not as detailed. With open banking, users can access more information and determine whether a person can buy or rent a property. 

Open banking does not only make credit scoring more accurate, but it also creates the possibility for predictive models. Real estate is often seen as an investment space and when it comes to investments, the present counts as much as the future. Open banking allows users to identify trends in spending and savings, showcasing the feasibility of a potential investment. 

Then, there’s the topic of speed. From submitting references and checking bank details to signing tenancy agreements, it can be done so much faster with open banking. When discussing revolutionising the space, we refer to the quality of information and the speed of execution. 

Benefits of open banking in real estate

Now, let’s get down to some more specifics. The technology can add significant and valuable components to an antiquated industry.

Increased transparency and accountability

Access to more information makes decisions and transactions much more transparent and accurate. People and institutions can take accountability for what they do. The real estate industry used to have a barrier to entry and was surrounded by a corporate veil of information and complex processes. Open banking has opened up the floodgates for participants. 

Improved risk assessment and management

We’ve referenced this before, but let’s expand on it more. Risk scoring helps with risk assessment, matching the right buyers with the right sellers. The key here is the immediacy of receiving information. Risk profiles are as good as how recent the information is. Open banking allows for real-time updates and better overall management.

Access to comprehensive data

This is the foundational piece of open banking technology. The depth and accuracy of information are remarkably improved. Participants of the open banking ecosystem have more resources to make decisions, assumptions, and plans. Comprehensive data is the bedrock of any real estate product or service. 

Mitigation of fraud and money laundering

In years past, real estate carried a bad rap as a hotbed of fraud and money laundering. The accusations have been of merit, as the sector had the necessary grey areas fraudsters needed to operate. With open banking, access to information and transactions is transparent enough to clear the space of these allegations. 

Potential challenges of open banking in real estate

As you would expect, no new technology comes without its challenges

Data privacy issues

Open banking specifications call for particular kinds of consent to share financial data. Global open banking regulations require specific consent journeys and APIs that request, manage, and revoke consent. 

Each open banking ecosystem establishes consent journeys and APIs and calls for interaction with financial institutions to retrieve the data from users' accounts that are readily available. It can become very challenging to harmonise these processes. 

Regulatory sandbox regimes are emerging all over the world. While regions are discovering that the sandbox may be where innovation and safety coexist, there is still much to be done to achieve that.  

For instance, regulators should specify the screening procedure for third parties and begin considering who would be responsible if something went wrong. However, it is not straightforward and linear. As the open banking system is being implemented, risks frequently become apparent. These brand-new issues seem unexpected at first.

Adoption rate and implementation issues

The latest “Open Banking Impact Report” has shown that adoption has continued to grow, with 10–11% of digitally-enabled consumers now estimated to be active users of at least one open banking service. This is up from 6–7% in March 2021. While that’s great news, the adoption and implementation numbers are still comparatively low. It will still take some time for the technology to specifically infiltrate the real estate sector. 

Future of open banking in real estate

The future of real estate could end up looking like this:

  1. You look and find a place you like

  2. You connect your bank account 

  3. Your identity and income are automatically verified 

  4. The real estate agent receives a complete profile of the interested buyer

  5. Deposit and rent payments are authorised with your consent

  6. Sign the contract

  7. Move in

While this only explains a particular real estate use case, it gives you an idea of what to expect from open banking technology. From document verification and automated payments to credit, transaction and rental history, the sky is the limit for the sector.

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