Australia: The Road to Open Banking

Australian banking customers will soon be able to share their transactional data with certified 3rd parties, including their banks’ competitors, to find better deals on banking products and services and improve competition in the market. Open banking will require banks to share customers’ details right down to transactions if the customer consents to have their data shared. This data will only be shared with approved third parties who will have to take precautions to protect the customers’ information. The system will be enabled through APIs which third-party developers can integrate into their applications and services.

Open banking is expected to increase transparency in the financial industry, whilst also making products offered by banks more competitive. This, in turn, could drive down lending rates and fees. The Australian government is a key driver in implementing the system and has imposed tight deadlines to ensure that open banking is rolled out quickly; the first APIs must be ready by July 2019, with the remainder due by July 2020. It has mandated that all the major banks need to comply with these dates, with non-major banks getting later deadlines.

Australia has four major banks: ANZ, Commonwealth Bank (CBA), National Australia Bank (NAB) and Westpac. The banks will also benefit from the system. Westpac’s chief executive spoke of the opportunities to tailor products and services to customers.

We see it as an opportunity because if you have more information about the customer, assuming the customer has given you that permission, you can make better decision-making on credit, you can tailor your services more specifically to that customer, you will have more information to provide back to them in other info to manage money better,” Mr. Hartzer said.

“It gives customers more control as to who is providing services and to compare products and make sure they are happy with the choices they make. More availability of information will help drive efficiency and innovation.”

However, for the system to achieve its goals without unintended consequences, it needs to be designed carefully. Australian banks have requested that the system is phased in product-by-product. Deposit, credit and transaction account data is set to be shared from the start of July next year and banks will need to develop their systems soon so that they can be adequately tested before being rolled out. Data sharing for mortgage products will be the next step (in February 2020) in the implementation of open banking, followed by personal loans (in July 2020). The banks will thus need to introduce systems which can be adapted for use across multiple product lines.

To achieve this, the major Australian banks will need to first set standards for the software which will enable open banking. An advisory committee, comprising 15 members from the industry who are yet to be announced and chaired by Data61’s (a leading analytics firm) Andrew Stevens, will meet on the 11th of July. Once standards have been set, the banks will be able to start developing the required software and implementing the agreed upon systems. In discussing these standards, the committee will need to consider many factors so that the final system addresses key customer concerns.

According to RFi Group Research, 39% of respondents are not concerned with open banking and its data sharing implications. Younger respondents, aged 18-34, were far less concerned (59% had no concerns) than older Australians, aged 55-80 (only 22% had no concerns). These young adults will benefit most from the system as they utilise technology more: 78% of respondents aged 18-34 use mobile banking, whilst only 28% of those aged 55-80 report doing so. They are thus more willing to overlook potential risks.

Unsurprisingly, security (36%) and privacy (57%) ranked highest as reasons provided by those concerned with the system. Many respondents who quoted security as a concern wanted to know what measures would be taken to safeguard their data, whilst some who mentioned privacy were not receptive to the sharing of data at all, even if assurances were provided. Open banking will be opt-in and so those who are not willing to share their data will be largely unaffected.

Open banking has already been introduced in the UK, and so the Australian bodies involved in its implementation will have systems which they can emulate and look to. The UK introduced open banking in January this year and whilst the system is still taking off, the regulation and safety measures employed could serve as a guide in developing Australia’s own system. Other countries, such as New Zealand, are also looking into open banking and what it might achieve. These countries will be closely monitoring Australia as it implements the system so that they can evaluate what challenges and opportunities open banking presence.

In discussing the open banking framework, the Australian advisory committee needs to not only address customers’ concerns, but also communicate how data will be safeguarded and used. This will ensure that the system is widely adopted and thus achieves its key outcome: to improve the industry.

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