Open Banking’s emergence has the potential to innovate how we assess creditworthiness.

Credit is key to keeping the economy moving. Think of it this way: for every $1 saved in the bank, 81 cents are given to others as loans. This shows just how much we rely on borrowed money, making credit a crucial part of our lives. Institutions use credit evaluations to predict if you’ll pay back what you owe. This measure can differ based on where you live. For example, in the U.S., a person’s credit score—a number reflecting creditworthiness—influences nearly every financial decision, from buying a house to getting a job. People often take on debt to build or increase their credit scores, treating it as a crucial part of their identity. However, in most of Europe, as seen in countries like Spain, people are often unaware of the concept of a ‘credit score’—at least in my classrooms. Instead, institutions evaluate how reliable you are with money by looking at factors such as income, work history, savings, and whether you’re on a debt default list.

Innovations like Open Banking could standardize credit evaluation across the globe through the use of financial data. Pioneered by the EU, Open Banking regulation requires banks to securely share your financial information—such as your purchases, spending patterns, and transactions—with other businesses. These providers can use this data, known as digital financial footprints, to potentially extend credit opportunities to individuals who lack a traditional credit score and are willing to share their data. For instance, this approach could particularly advantage young people in the U.S. who lack credit history, or individuals in Spain without a lengthy employment history. Research suggests that sharing and analyzing financial footprints can result in higher approval rates for loans, lower interest rates, and fewer loan defaults.

Addressing concerns about price discrimination and making sure privacy is protected are crucial steps to avoid potential problems when sharing digital footprints. However, despite these challenges, Open Banking is set to improve financial technology, making financial services more accessible to more people. The digital revolution has greatly changed the economy, and Open Banking is expected to continue driving these changes in the future.