Loan defaults and lending misjudgements are never good news for lenders. But during economic uncertainty, they carry more acute financial consequences.
Open banking can be the critical asset that drives lenders to navigate through economic downturns. It helps your small lending business make decisions based on comprehensive and real-time data that accurately shows you what’s actually happening in your borrower’s financial life.
With such insights, it becomes easier to assess risk, respond to changes in the wider economy, and maintain operational control. Ultimately, powerful data capabilities offer the resilience you need to weather any type of economic downturn.
This article explores how open banking data helps you identify early signs of financial stress, manage credit risk with greater precision, and protect profitability during uncertain periods. It outlines practical ways to apply real-time borrower insights across underwriting, servicing, collections, and retention to support more resilient lending operations.
Understanding Economic Uncertainty
Economic uncertainty describes periods when the future direction of the economy is unclear. It often results from inflation, market instability, policy changes, or global events that disrupt normal conditions.
When uncertainty grows, spending slows, investment stalls, and lending tightens. This reduction in activity often signals the start of a recession.
In the United States, recessions have occurred in the early 1980s, 1990s, 2000s, during the 2008 financial crisis, and most recently in 2020. While each downturn had different causes, all were preceded by sharp increases in economic uncertainty.
The Federal Reserve recently found that Americans are in financial stress today, with rates of credit cards in delinquency approaching 2008 levels. And with consumer confidence falling, now is the time for lenders to take action to improve their resilience.
For lenders, this context is crucial, as it is remarkably difficult to predict an economic downturn.
However, with comprehensive and timely data, you can spot market trends that point to a slowing market, recognize the warning signs, and adjust your approach before conditions worsen.
Why Open Banking Data Matters Now
First of all, you might be asking, what is open banking?
In simple terms, it’s the interoperability of financial services that allows third-party providers to access customer data. It’s what enables you as a lender to access a borrower’s current account data held with a bank, as an example.
The categories of borrower data that open banking enables you to access might include income, spending habits, savings levels, and existing loan repayments. With borrower consent, you can use this information to assess financial behavior with greater accuracy.
However, more data does not necessarily guarantee better decisions.
Bank data is often messy and difficult to interpret without structure. It needs to be cleaned, organized, and analysed with clear goals in mind. Otherwise, trying to manage massive tranches of data can easily become overwhelming.
Tools like Bankuity’s Advanced Banking Verification (ABV) help make sense of any data complexity. By structuring and interpreting all your borrower and customer data, ABV supports stronger loan assessments, detects irregular patterns, and tightens decision-making across your portfolios.
The benefits of open banking extend well beyond underwriting.
You can apply these insights during servicing, collections, and retention, while the data-led insights that you will generate can inform marketing and sales campaigns too.
Open Banking Data Key Indicators of Economic Instability
Bank data is not only about individual customer information. It can also help your lending business identify early signs of financial stress, before they affect loan performance.
Unlike lagging indicators such as credit scores or macroeconomic reports, open banking provides real-time insights into your actual customer behavior. This is essential during periods of uncertainty when traditional forecasting becomes unreliable.
This is what open banking data can tell you about the general financial context.
Spending Behavior
A drop in discretionary spending in areas like dining, entertainment, or travel can suggest declining income or a more cautious financial outlook.
A rise in credit card use or overdraft reliance may also indicate growing pressure on household budgets.
Savings Patterns
A sudden increase in savings or a sharp reduction in spending often reflects income concerns.
Borrowers may be preparing for job loss, contract reductions, or inflation-driven cost increases. These changes in saving behavior can signal a shift in confidence or financial capacity.
Delinquency Trends
An increase in late or missed payments is a direct signal of strain.
When this appears across borrower segments, it often reflects broader economic issues. Monitoring this trend allows lenders to identify stress early and adjust exposure before default rates rise.
To be more precise, Bankuity has been able to identify a 10% segment of customers with a first payment default of 51%—a sign that lenders need to monitor these trends closely and accurately. And before that, our Payment Risk Zone (provided before each payment is due) has been able to identify a population with a 50% payment default rate.
Cash Flow Patterns
Irregular deposits or unpredictable business revenue make repayment less reliable.
This is especially relevant in small business lending, where income often follows seasonal or volatile cycles. Persistent instability in cash flow can undermine repayment even before a borrower falls behind.
Leveraging Open Banking Data for Risk Management
In uncertain conditions, credit risk management requires fast, informed decisions. Open banking data gives your team continuous access to verified financial activity, helping them to assess borrower health with precision and speed.
Bankuity’s ABV structures this data into useful and actionable insights, positioning you to monitor income stability, detect irregularities, and improve repayment strategies.
Borrower Stability
Open banking data gives you a real-time view of borrower income and spending, as well as debt. With ABV, this goes much beyond static documents.
Rather, it provides wide-ranging and up-to-date data insights and behavioral patterns that provide a precise picture on each borrower’s financial health:
- Income volume and cadence: This is especially valuable for self-employed or contract-based workers, whose income may not appear on a payslip but follows a clear pattern. Conversely, Bankuity’s Due Date Zone has identified 40% of customers with debit dates that don’t match their income, meaning that they are likely to miss payments.
- Income changes: Sudden drops in income, gaps between payments, or irregular timing may signal job loss, reduced hours, or business slowdown. These early signs help you to reassess risk before it turns into missed payments.
- Other debts: Payments to credit cards, personal loans, or buy-now-pay-later services show a borrower’s full financial load. Open banking reveals what a customer owes, how they’re managing their repayment obligations, whether they are making timely payments, and whether they are only covering minimums.
In other words, a borrower’s financial situation is much more nuanced than a linear flow of money. Open banking data gives you the whole picture.
Fraud and Anomalies
Usually, fraud attempts increase during economic stress. Open banking helps detect issues early by tracking account-level activity that doesn’t match expected behavior.
Large transfers to unfamiliar accounts, sudden spending spikes, or changes in transaction frequency can be red flags. Open banking tools spot these anomalies, prompting further review before approval.
Unusual access, such as logins from new locations or devices, can suggest account takeover or identity misuse. These behavioral cues are difficult to detect through traditional checks but are clear in live data.
Catching fraud early protects both lenders and borrowers. It prevents losses, avoids reputational risk, and ensures responsible credit is going to the right applicants.
Collections Strategies
Repayment outcomes often depend on timing and context. Open banking data helps lenders engage borrowers based on real income patterns and financial habits.
Bankuity’s Collections Zone has identified population segments that range from a 0.5% to 50% likelihood of making an arrears payment.
If a customer’s income lands on the 28 of each month, reminders sent on the 29 are more likely to succeed. For irregular earners, you can look at trends over time and schedule outreach accordingly.
Spending behavior also provides signals. For instance, if essential bills are paid but loans are skipped, it may point to short-term strain. Early, tailored engagement can prevent escalation and support recovery.
You can also segment accounts based on live risk. Borrowers showing instability can receive proactive support, while stable borrowers follow automated processes, which improves efficiency and overall repayment performance.
5 Tips To Maintain Profitability During Downturns
During economic slowdowns, you can balance cost control with long-term borrower health.
Continued profitability depends on managing expenses, identifying new lending opportunities without increasing risk, and strengthening repayment outcomes. Open banking can support these objectives, but clear strategic choices are equally important.
While no strategy removes risk entirely, these actions can help protect margins and improve long-term outcomes for your small lending business amid economic volatility.
1. Diversify Revenue Streams
Relying on a single borrower type or product perpetuates risk.
Expanding into both consumer and small business lending can help spread exposure. Open banking data enables accurate assessment of less traditional borrowers, including sole traders and gig workers, who often fall outside standard credit models.
2. Streamline Operations
Lowering operational costs without compromising service quality is essential.
Digital onboarding, automated verifications, and real-time income checks reduce manual effort, improve consistency, and reduce approval times. These capabilities also help limit human error and massively speed up the path from application to funding.
3. Reach Underserved Segments
Standard credit assessments often miss viable borrowers with limited history or recent job changes.
Reviewing application and bank data can uncover patterns in declined profiles, revealing overlooked groups that could be served with revised approval criteria or new product offerings.
4. Prioritize Retention
It costs less to retain a good borrower than to replace one.
Open banking allows lenders to detect early behavioral changes, such as rising expenses or reduced income, and engage before repayment issues appear. Targeted offers and flexible options can strengthen loyalty and prevent churn.
5. Build Flexible Products
Borrowers facing short-term income issues may benefit from customized repayment terms.
Payment pauses, reduced installments, or income-linked plans can help borrowers stay current on their loans and avoid default. These features also reduce long-term losses and improve customer satisfaction.
A Smarter Way To Lend in Uncertain Times
Wide economic uncertainty makes credit risk harder to assess and profitability more difficult to maintain.
And when job losses increase and hiring decreases, lending decisions can become more difficult—and the cost of error increases, if you don’t have the right data tools to help.
Open banking gives you direct access to real-time financial behavior that can inform your lending decisions with much greater precision.
Bankuity’s ABV gathers and transforms borrower data into insights that support better decisions across underwriting, collections, and wider portfolio strategy. Schedule a demo to see how Bankuity helps you turn open banking data into decisive business action.
