Open Banking and use in tenant referencing
Open Banking along with a credit report has been utilised by several tenant referencing companies as the method of providing a full reference report. However, if Open Banking is used as the method for payment/income verification, this has serious downsides and should not be relied upon when seeking validation as to an applicant's suitability.
What is Open Banking?
Open Banking is a change to the UK banking industry and has been designed to give access by an applicant to share their financial information electronically; if Open Banking is used as the process for tenancy suitability, this is a high-risk flawed method as highlighted below:
Income confirmation
As Open Banking totals incoming payments, including, unbelievably, returned unpaid direct debits, this should not be treated as being validation of a person’s income position and as to suitability for tenancy. Apart from the income doubt surrounding Open Banking, there are further failings regarding Open Banking:
Key areas of concern
Open Banking includes and cannot confirm or distinguish in the following areas:-
• Open Banking Includes additional elements as "income" such as refunds, money received from the applicant and family members (this being subsequently returned/recycled),and incoming amounts from returned unpaid Direct Debits!
• the type of income stream - employed, fixed term contractor/temp worker or self employed
• If the applicant is self employed, Open Banking uses the TURNOVER figure and does not identify the profit.
• if the income is the basic salary or includes non-guaranteed bonuses etc.
• the stability of the application – when did the applicant start?
• is the work position set to change or end?
• is the applicant still at the workplace?
• has the applicant resigned?
• the applicant’s job title
• Open Banking cannot confirm a future work position
• The reports produced provide an employment start date which is a fabrication, having been lifted from the completed tenancy application form.
Landlord/letting agent reference where the applicant is a tenant.
We have seen examples of landlord/letting agent references not being undertaken, with Open Banking used as the sole source of information to confirm a tenant’s performance as a tenant.
Key areas of concern
• Tenancy breaches
• Tenancy commitment and payment validation
• The reports produced provide a tenancy start date which is a fabrication, having been lifted from the completed tenancy application form.
Tenancy breaches
Clearly, bank transactions alone cannot identify if there have been tenancy breaches or problems such as damage, anti-social behaviour, unauthorised occupants/sub-letting, use of the property as AirBNB accommodation, rental payment shortfalls etc. However, some referencing companies state there have been no tenancy breaches, having identified this point as a report presentation area of concern.
Tenancy commitment and payment validation
Open Banking cannot validate if there is a tenancy commitment at the current rental address, if the payment transactions are for the rental property in question, if the rental payments are the correct amount and if the payments have been made to the actual landlord.
Copy references for landlords and letting agents
What happens when landlords/letting agents request sighting of the references that have been obtained? With Open Banking, references are not available.
With the Renters’ Rights Act coming into effect on 1st May 2026, the scrutiny of the referencing that has been undertaken will come even more under the microscope.
Over-reliance on technology
Referencing companies have adopted Open Banking as the tool to use for validation, with this method being the driver for tenancy recommendations. This has led to an erosion of human skills in applying common-sense to referencing and has drained the ability for referencing personnel to take and understand references and, in turn, to be able to drill down and detect the less than honest application.
Should a prospective tenant or guarantor reject the use of Open Banking for their application and provide copy documentation, these statements are not queried or challenged by the referencing company as to whether they are genuine, with the “payments in” total being used as per the Open Banking route. Technology in tenant referencing should only ever be used as a facility to aide what a person does and not to extinguish the vital human interaction and decision-making process.
Conclusion
Whilst reports produced utilising Open Banking give an illusion of a thorough referencing service whilst providing cost-savings for tenant referencing companies,it is clearly not fit for purpose.
With the Renters’ Rights Act commencing on 1st May 2026, it has never been more important to understand and assess the actual risk of prospective tenants, and no shortcuts should be taken in the referencing that is undertaken.
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