Open banking is up and running in Australia, but what exactly does that mean for consumers and lenders? Find out here.
The first and second phases of open banking in Australia were launched in July and November 2020, respectively, and since then the industry has begun to attract interest.
What does this mean for customers and lenders? Read on to find out.
What is open banking?
Open banking gives you the ability to share your banking data and credit card data with accredited third parties to help you access new banking products more easily.
This means that as a customer you can ask that your data — think your account balances and your transactions — be sent to other banks, financial institutions or fintech businesses. However, you're able to control who can access your data and how they can use it. All of your data is protected under the rules of the Australian Competition and Consumer Commission (ACCC).
When did open banking start in Australia?
On July 1, 2020, the country's big four banks — ANZ (ASX:ANZ,OTC Pink:ANEWF), Commonwealth Bank of Australia (ASX:CBA,OTC Pink:CBAUF), National Australia Bank (ASX:NAB,OTC Pink:NAUBF) and Westpac Banking (ASX:WBC,OTC Pink:WEBNF) — began offering customers open banking data sharing for everyday transaction accounts, credit cards and debit cards.
As of November 1, 2020, customers of those same major Australian banks could also request and share data for additional products, including:
- Joint accounts
- Closed accounts
- Home loans
- Personal loans
- Investment loans
- Direct debits
- Scheduled payments
- Payee data
Not a customer of a big four? Not to worry — smaller banks and ADIs (authorised deposit-taking institutions) will have to start providing open banking data to their users by July 1, 2021.
What are the benefits of open banking?
Open banking can speed up the process when applying for a new bank account or credit card. Instead of downloading and uploading statements to your application, information can be sent with a few clicks.
You may be able to find products that suit your individual needs quicker with the help of some comparison sites. You could also use open banking to look at different services, or with budgeting apps that can help with goal setting or savings. Overall you can get a better picture of your finances.
One of the biggest pain points when changing accounts is worrying about longstanding direct debits for bills and subscriptions. Open banking makes it relatively simple to transfer the details to a new account.
What risks are associated with open banking?
The biggest concern with open banking has always been privacy and security. In fact, the ACCC delayed the launch of the Consumer Data Right Act (the legislation behind open banking) from February to July 2020.
As a consumer, you also need to feel comfortable with what information you are sharing with lenders and third parties. You can check the Consumer Data Right website to ensure the third party is accredited, and you can check your data-sharing permissions using your internet banking account, usually under your settings.
As with standard banking security, you should never share your password or PIN. If you decide to share your information, your bank will typically send a one-time password straight to your mobile.
Where does Australia fit in the global open banking landscape?
Open banking first originated in Europe and the UK, but is now being deployed in different forms around the globe. As a report from Deloitte explores, the approaches tend to fall into two major camps globally:
- Market driven: A number of nations like Singapore, South Korea, Japan and India do not have formal or compulsory open banking, but instead have introduced regulatory measures to boost data sharing in banking. The US has also taken a market-led approach, but without any government initiatives.
- Regulatory driven: Hong Kong issued an Open API Framework in July 2018, but unlike in the EU banks can choose to restrict access to third party providers. Australia has taken a broad and ambitious approach with the Consumer Data Right Act, using banking as an initial testing ground before it can be applied eventually to almost any sector.
What are the implications of open banking for the fintech industry?
Open banking is an exciting prospect for the fintech industry. As consumers are given the freedom to easily switch and make comparisons, there is scope for new players and products to enter the market.
While it once may have seemed complex to understand if you are getting a better deal, it is now easy to tell and almost as simple to make the switch.
Banking is only the first area for the Consumer Data Right Act to be tested. Once the bugs are ironed out, it is slated to be rolled out across the telecommunications and energy sectors.
A report on the state of open banking in Australia from fintech firm Frollo shows keen interest from the sector, but still much uncertainty around the costs and return on investment of getting involved. Time will tell where open banking can take the Aussie fintech sector — watch this space.
Don't forget to follow @INN_Australia for real-time updates!
Securities Disclosure: I, Ronelle Richards, hold no direct investment interest in any company mentioned in this article.