On November 26th 2017, the Australian Government launched the Consumer Data Right (CDR), which gives consumers greater control over their personal data. Under the CDR, Australians have a bigger say in how their data is used and disclosed.
CDR allows consumers to switch between products and services, which will increase competition among service providers. As a result, the hope is that this will lead to competitive prices and innovative products and services for customers.
The Consumer Data Right scheme will be unveiled in phases, starting with the banking sector, and then branching out to the energy and telecommunications sector.
The set of CDR guidelines that pertain to the banking sector is called “Open Banking” and is being unrolled out in stages. Starting from July 1st 2020, customers of the big four banks (ANZ, Westpac, Commonwealth Bank, and NAB) can share their credit, debit, deposit and transaction account data with third parties. On November 1st, open banking expanded to include mortgage, investment, and personal loans data.
Other smaller banks or authorised deposit-taking institutions (ADIs) will be included in the open banking framework over the next 12 months with the deadline being July 2021.
Non-ADI organisations that want to receive data under the open banking framework will have to apply via the ACCC to become accredited data recipients. They will need to meet stringent requirements in order to get approved.
Consumer Data Right gives Australian consumers the right to withdraw their consent to share data at any time. This means that the data recipient will also have to delete or de-identify your personal data.
Open banking has been one of the most exciting topics in the financial sector for the past few years now. But, what exactly is open banking and why should you care? Let’s take a closer look at what open banking means to the Australian consumer.
What is Open Banking?
Open banking grants Australians the ability to share their banking data with third parties that have been accredited by the Australian Competition and Consumer Commission (ACCC).
These accredited third parties or data recipients may be other banks, financial institutions or fintech businesses.
Customer data is shared between approved providers through secure APIs (Application Programming Interface), which is an interface allowing two applications to communicate.
The data that Australian bank customers give to accredited third parties is protected by the Rules of the ACCC.
The mission of open banking is to allow Australians to effortlessly manage their finances using a single and secure app.
In essence, open banking gives the Australian consumer the power to make the most of their financial data.
Getting Started with Open Banking
To get started with opening banking, head over to an accredited data recipient’s website or app. You will then have to follow the instructions in order to give them access to your financial data.
Once you’ve given the data recipient permission to access your data, you will have to perform an identity check. Then you’ll have to confirm what data to share and for how long. Once you complete this step, the bank will transfer your data to the data recipient via an API.
Finally, you’ll be redirected back to the third party’s website or app where you can start using the service.
As you can see, it’s very straightforward.
How Can Open Banking Benefit Australians?
Open banking allows approved third parties to analyse financial data of consumers in order to provide innovative and customised services that meet the evolving needs of Australians.
- Signing up for financial products more easily
- Saving time in switching providers
- Enjoying personalised financial services
- Having a clearer overview of one’s finances
Let’s take a closer look at how each benefit can help consumers manage their finances more effectively.
Signing Up for Financial Products
Australians who use open banking to share their data with a new approved provider may have an easier time demonstrating that they can afford the loan or credit for which they’re applying.
For example, using open banking, a lender can see that you receive regular salary payments and how much of it you spend. Or that you’re making regular repayments on an existing loan.
By looking at your transaction history and account balances, the lender can have a more accurate understanding of your ability to make payments.
Another example is if you are looking to sign up for a new credit card, you would typically need to provide identification documents and banking documents showing your transaction history and then apply at that bank.
On the other hand, thanks to open banking you can avoid this entire hassle by instructing your current bank to send your information to the new bank with a couple of clicks.
Switching Banks Made Simpler
Australian bank customers have a tendency to stay with their banks because of the inconvenience changing providers can cause.
According to Finder’s Loyalty Tax Report, eight million Australians don’t switch their financial providers regularly – a habit that costs each of them an estimated $8496 annually.
One of the things preventing Australians from changing financial providers is the manual work that goes into switching accounts. For example, they may have direct debits attached to a particular account, such as a Netflix subscription or a gym membership. The hassle of moving those payments over to a new account stops them from choosing a better provider.
However, open banking allows customers to share their direct debit data, which means these direct debit payments can be switched to another account in a few easy steps.
Therefore, changing your automatic debit arrangements has never been simpler.
Australians Can Enjoy Customised Banking Services
Another strong advantage of open banking is being able to compare prices and choose personalised product options.
While comparison services already exist in Australia, they rely on customers answering questions that can sometimes be too general. This in turn negatively affects the recommendations.
Open banking can make recommendations of these comparison services more relevant by using data from consumers’ current financial provider. The end result would be more tailored recommendations a bank and/or broker can provide to each customer.
Monitor Your Finances
Open banking can significantly improve the services of financial management tools so that their customers can set realistic goals and budgets. Financial management apps can help users keep track of their expense and offer ways to increase their savings.
For example, your savings account has the option to receive bonus interest. A financial management tool could warn you if you’re not meeting the requirements for receiving the bonus interest. This gives you an opportunity to make the necessary deposit in time.
Challenges Facing Open Banking
If open banking is to fulfil its mission to empower the Australian consumer, then privacy and security must be guaranteed.
There has been much discussion in the media surrounding the security and privacy challenges that open banking presents.
No digital platform is entirely impenetrable and there will always be ways for hackers to identify security flaws. This is especially true for open banking because it relies on APIs to transfer data. When configured improperly, APIs pose a security risk. What happened to Uber is one of the most high-profile examples.
While people’s concerns are understandable, they should remember that the ACCC is regulating the scheme and has put in many safeguards to protect the financial data of Australians.
Open banking is a global phenomenon, and the Australian government is betting that it will make banks more engaged and active with customers and their brokers.
Open banking is still a relatively new development, and it will likely take time before it can fully transform the finance space. However, the ability to have instant access to one’s entire financial profile in one place is a compelling prospect for Australians.
At Aviator we’ve been keeping abreast of the developments of open banking since the beginning. If you’re interested in open banking and would like to learn what it can do for you, then get in touch with us.
Disclaimer: The information provided herein is for general information purposes only and does not constitute specific advice. It should not be relied upon for the purposes of entering into any legal or financial commitments. Specific advice should be obtained from a suitably qualified professional before adopting any investment/financial strategy.