Set to rock the banking world on its head, open banking will allow customers to take control of their financial data, including the ability to share data with accredited third-party institutions.
Launching from February 2020, the move aims to increase competition in the sector by making it easier than ever to switch banks.
Deloitte Australia’s lead financial partner in open data and banking, Paul Wiebusch, believes customer trust will be the determining factor for open banking’s success.
“It starts with trust. Banks seeking to retain or win customers need to be trustworthy,” he said in an article for Deloitte.
“trustworthiness impacts who people bank with and how willing they are to share information. And it influences the type of organisation with which they are prepared to bank.”
During a recent survey of banking customers, Deloitte Australia found trust to be the main factor considered by customers when deciding where to bank, also noting that millennials are twice as likely to switch banks as other demographics.
It also found that behavioural biases tend to stop many from switching banks, sighting that people ‘tend to stick with what they have’. Despite this, the survey also found that people are three times more likely to share data if the other institution is accredited, leaving hope for the success of open banking.
Why is there a push to make data more accessible?
In the 2017-18 Budget, the Government announced plans to increase competition in the financial sector, with a view to give customers more choice and better services.
Open banking will contribute to this, though the strategy has already begun.
With the rollout of Comprehensive Credit Reporting (CCR) in the last months, banks are now sharing more data and in theory, customers have access to better home loan deals.
Through CCR, reporting bodies now have access to more information, such as a person’s credit limits or repayment history, leading to a more accurate (and usually, more positive) account of a customer’s history. It also allows credit providers to practice more responsible lending.
When will open banking start?
For the big banks, open banking will begin February 2020.
From this date, the big banks will have the ability to share account data for deposit and transaction accounts, as well as data from credit and debit cards (including transaction data). Smaller institutions will have another 12-months to get the necessary architecture in place before making the move.
From July 2020, the big banks will also be required to share mortgage and offset data. Again, smaller banks will have another 12-months to make the move.
What will open banking mean for me?
Open banking will give customers more control over their own data. Through being able to share data with accredited third-party institutions, processes such as applying for loans will be made much smoother, with less paperwork.
Changing banks will also be easier, and it will be easier to hold banking products with multiple institutions.
However, the move could be negative for some. Those with questionable transaction histories may be negatively impacted by institutions having access to shared transaction data, making them appear irresponsible.
Lessons learnt from the UK
Australia is an early adopter of open banking and is learning from mistakes made from around the world, specifically the UK.
In the UK, open banking was launched in 2018 however, their original rollout was exclusive to transaction accounts and included only nine banks.
Unlike the UK model, once the rollout is complete the Australian open banking system will be available to all Authorised Deposit-Taking Institutions (ADIs), and it will cover all banking products.
In an opinion piece for the Australian Financial Review, Financial Data and Technology Association (FDATA) global chairman Gavin Littlejohn wrote:
“Australia has approached open banking in the right way and is putting the necessary building blocks in place,” he said.
“Where the British model only covers payment accounts for the largest banks, Australia’s open banking accounts for the full range of financial verticals including loans, mortgages and investments.”
Likewise, Asia Pacific regional executive for the software business, MuleSoft, Adrian Melillo, agrees. He told the Australian Financial Review that the Australian system as a ‘true open-data regime’.
“Australia is learning from early adopters in the UK and even extending its open banking initiative to be a true open-data regime that will drive competition across a number of sectors for consumers’ benefit,” he said.
The importance of data rights
Unlike other countries, such as Japan, Australia has also established Consumer Data Rights (CDR), giving customers ownership of their data.
Littlejohn said that although other countries have launched open banking, they have failed by not establishing CDR.
He said that in Japan, when the first fintech requested financial data, the bank monetarised the commodity, charging $US5 million for access.
“As long as the bank controls the market and can decide the commercial terms for access, there is no open banking,” he said.
Words by Kathryn Lee
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