Why rich Open Banking data gives confidence in affordability decisions

“At higher levels of spend which may indicate harmful binge gambling or sustained unaffordable losses … there should be a more detailed consideration of a customer’s financial position”

With these words, the recently published UK Gambling white paper confirmed that the government was expecting operators to ensure that players losing over a certain amount (£1,000 in a day or £2,000 in the space of 3 months) to have confidence in their ability to afford it.

Unfortunately, we don’t know much more about what “a detailed consideration of a customer’s financial position” actually means yet. The outcome of the ongoing consultation may clear some of that up, and there are already hints in some of the language being used. But even before that happens, it might be worth evaluating the competing approaches to determining “a customer’s financial position” from a positive point of view. Which approach gives an operator the confidence they need to make fast, accurate affordability and source-of-funds decisions?

Before we discuss each in turn, let’s broadly categorise the options open to most operators at the moment. These are:

• A collection of ‘static’ data points, usually provided by a credit reference agency, that might include bankruptcy and court judgement history, credit history, and ONS data relating to average salaries and so on. Without explicitly calling this out, it appears the Gambling Commission envisage adding CATO data to this mix.
• Bank statements supplied by the customer, which if everything goes right include a recent 3 months worth of data.
• Bank data supplied via Open Banking (again with the customer’s consent) that covers the last 12 months up to the present day.

When making an affordability or source-of-funds decision, what an operator needs is certainty. And it is important to understand that this isn’t just for the purposes of meeting regulatory requirements, Missing or incomplete data inevitably encourages operators to be conservative when making compliance decisions, which in turn means turning down potential revenues in order to ‘play it safe’.

Viewed in that light, how do these alternative approaches stack up? Let’s look at each in turn.

Credit reference agency data is a static view of one moment in time, albeit taking account of historical data. It is an estimate of an individuals financial position, even when CATO data is included. Based on this limited data it is hard to make affordability decisions and impossible to make source-of-funds decisions (the relevant information simply isn’t available). Just to add another challenge to the mix, the issue of ‘false negatives’ is significant here: a missed credit payment 5 years ago isn’t of great concern to an affordability check taking place today: but it will be hard to disentangle that individual data point from rating provided by these agencies.

Bank statements provided by the customer provide more data and allow source-of-funds decisions to be made in addition to affordability decisions (ie, you can identify and confirm salary payments going into the account). It should usually be possible to make a fair estimate of disposable income, although longer-term trends in income and expenditure are harder to spot.

Bank data shared via Open Banking gives almost complete transparency and enables operators to make informed decisions based on a true representation of a customer’s finances over the course of 12 months. This provides unique insights that are simply unavailable elsewhere. To give just one example, if an individual’s gambling spend peaks at a particular time of year (Cheltenham, for example) but is negligible at other times, this can be easily observed. Indeed, the individual concerned may have saved specifically for the event, which can in turn be taken into account. 

To put all that into context, bank data shared via Open Banking gives the operator the data it needs to make decisions confidently, quickly, and with the knowledge that nothing is hidden. And that ultimately means allowing more customers to bet, and stake at a higher level than otherwise might be permitted.

The perfect world

Open Banking, of course, has one final advantage. As long as the customer permits (and it is important to remember that Open Banking is always based on explicit customer consent), an operator can keep the connection to a customer’s bank data open. This means that it is possible to actively track financial status for the purposes of customer due diligence. 

This can be positive (wage increases or a significant bonus) or, of course, negative (loss of salary). But what it does do is ensure that at all times the operator has perfect clarity around their compliance obligations to the individual. To stress one more time: clarity is good. Without clarity, operators are playing it safe based on approximations and guesses. With clarity, they can make those compliance decisions with confidence, minimise harm, and maximise revenue.