Open Banking – Are you ready Australia?

Introduction

The initial face of open banking in Australia was launched on 1 July 2020, allowing customers of ANZ, NAB, Commonwealth Bank and Westpac ( Big four banks) to securely share some of their banking data with other accredited banks and FinTech firms (Donaldson, 2020). The launch of open banking was welcomed by the Australian Banking Association stating that this would allow consumers to search for better deals on banking related products and In fact , this allows to create competition among banks enabling Australians to use their data for their own benefit (Donaldson, 2020). This means 'Open Banking' has already begun in Australia. Now let us understand how this works, its benefits and considerations.

What is Open Banking?

Open banking is a banking practice that provides third party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-financial institutions through the use of Application Programming Interfaces [API] (Australian Banking Association , 2020). Open banking gives the consumers the control of their data held by financial institutions. Open banking requests consumer permission to send your data to banks, financial institutions and authorized organizations. In other words, consumer has the control of his or her data and how it is used.

Consumer Data Right (CDR)

Consumer Data Right or commonly known as CDR is what gives the consumer the right to choose to share data that providers hold on you (Barry, 2020). It provides you the right to share data between various providers to be able to easily switch between providers, compare products and select services (Barry, 2020). Beginning of August 2019, Australia took a major step in open banking by passing the CDR legislation giving the customers the control of their data and enabling them to share it with third parties (Deloitte Australia , 2020).

How open banking will work in Australia?

The possibilities are endless with open banking. At present, if you are banking with a certain bank and wants to acquire a new credit card, it is easier because the bank has all transaction history and identification documents in the system. However, lets assume you want to obtain the new credit card with another bank which is not your existing bank, then it becomes bit of tedious task. However, with open banking, you could instruct your bank to send your information to any bank you request, making the process of signing on to a new product in new bank much easier.

With open banking, you will be allowed to direct your banking data to be fed into budgeting apps that manage your money (Barry, 2020). Budgeting apps such as Yolt, Money Dashboard and Cleo has become very popular in the UK post-launch of open banking. These budgeting apps helps you to categories your money, track and optimize savings (Barry, 2020) . Budgeting apps acts as the third party and provide product options, recommendations that are customized to a more specific financial requirement of a consumer.

What will a consumer be able to request from Bank?

There are various types of data included in open banking, however these are available at different time periods. From 1 July 2020, a consumer can request his or her data of transaction accounts, deposit accounts, credit card and debit card details with one of the Big Four Banks in Australia (Barry, 2020). The other banks which are not Big 4, will have their data available to consumer from February 2021 (Barry, 2020). Home loan, investment loans, personal loans and joint accounts data will be able to be requested from the bank only from 1 November 2020 (Barry, 2020).

Where can my data be sent and received?

Authorised deposit taking banks will be automatically included in open banking. At present two other organizations are authorised to participate in open banking namely; Frollo and Regional Australia Bank (Donaldson, 2020). As per the Australian Competition and Consumer Commission (ACCC), 39 other organizations have also begun the process to become accredited under opening banking (Donaldson, 2020).

How is data shared under open banking?

The first step is to give permission to the provider to access consumer data, afterwards the identity is verified. Consumer can then see and manage data that is consented to share and can withdraw if required at any time. Next step is to share data securely in a machine-readable format. Finally, you will be able to start using the website or application you want to use with your bank data.

What are the benefits of Open Banking to consumers?

The open banking is a free service to consumers. The key benefits include enabling consumers to easily sign up for financial products, saves time in switching between providers, allows consumers to find products which are customized to his or her situation and have a holistic view of your own finances.

Sign up for financial product easily

The new service provider will be able see data of a customer of another bank and can easily assess repayment capacity pertaining a loan or a credit card. Let’s assume you are NAB customer, but you want apply home loan with ANZ due to its rate. You can allow NAB to pass your data to ANZ. ANZ can now do the risk assessment looking at your transactions and process a new home loan with minimal data from the customer.

Save time switching between banks

Most consumers stick to their bank and not try out other banks is because of the hassle of switching. But now with open banking, the big 4 banks in Australia can send identification and transaction data from existing bank to another bank using their mobile app or internet banking platform. The process is simpler and lot more convenient to the consumer. From 1 November 2020, the customer will be able to share their dire t debit data, which means arrangements may then be able to be transferred over to new account in simple steps (Donaldson, 2020).

Explore products and services that are customised to your requirement

The consumer can compare prices, product options that are specific to his or her criteria. For example, if I require a home loan, what are the rates big 4 banks are offering me for a loan of $800K over 15 years? All 4 banks will be fighting to get this loan by quoting their best deal. The banks are forced to give a customised offer.

Better monitoring of finances

With the help of budgeting apps and open banking your finances will be managed better, and you will have a holistic view of your financial situation. The data helps the consumers to keep track of their expenses. For example, if you set goal to achieve a certain savings amount but when expenses increase, a notification is sent stating, if you incur this expense your goal will not be achieved. The app with have a dashboard with all the banks you operate with, how much finances available etc.

When does open banking start in Australia?

Open banking officially commenced on 1 July 2020 (Barry, 2020). From 1 July 2020, CommBank, NAB, Westpac and ANZ were required to make your data available to you if you request it (Barry, 2020). Data which will be included in the first phase of open banking from 1 July 2020 will include credit and debit card, deposit and transaction data (Barry, 2020). Mortgage and personal loan data will follow on 1 November 2020 (Barry, 2020). Banks other than the Big Four will need to provide access to open banking data over the next 12 months to July 2021 (Barry, 2020).

Is open banking safe?

Yes. It is a secure data sharing process. There had been many discussions on the security and privacy concerns. Since this concept is new consumers may feel nervous about the security, however we should not forget that Australian Competition and Consumer Commission (ACCC) is regulating this service and is committed to protect consumers data. ACCC has set many hurdles to approve accreditation to third party service providers in open banking requiring them to satisfy all systems and security. The process for sharing CDR data has been established by CSIRO's Data Standards Body and the data transfer process uses application programming interfaces (APIs) to transfer your data securely (Barry, 2020).

Is Australia the only country to do open banking?

No. United Kingdom has already mandated open banking via open APIs since 1 January 2018 (Barry, 2020). The European Union has also mandated open banking with payment initiation and account data retrieval by third parties having come in effect in May 2018 and countries such as USA, Singapore are now taking steps towards data sharing and open API’s (Barry, 2020).

What should I consider before using Open Banking?

You might be a current customer of a big four bank. If so, there are few considerations you need to think before jumping on to open banking. If you are satisfied with the security of existing bank, data receipt and the data recipient have been scrutinised by ACCC, then it is a green light. This third party might be a mobile app. So do your research on the mobile app and check whether they are accredited by ACCC. However, consumers should be careful in deciding what they want to share and for what purpose. If it is beneficial to you, why not go ahead? Banks such as Westpac are proactively promoting open banking at the moment. When you visit their open banking section you will find many useful answers to doubts you had on open banking. Open banking puts you back in control of your own data. This pushes banks to be more competitive. On the other hand, having better access to your data will allow you to make better and more informed choices about the financial products that are right for you.

References

·Australian Banking Association , 2020. [Online] Available at: https://www.ausbanking.org.au/policy/the-future/open-banking/[Accessed 17 July 2020].

·Barry, E., 2020. finder.com.au. [Online] Available at: https://www.finder.com.au/open-banking [Accessed 19 July 2020].

· Deloitte Australia , 2020. Deloitte Australia. [Online] Available at: https://www2.deloitte.com/au/en/pages/financial-services/articles/open-banking.html#[Accessed 19 July 2020].

· Donaldson, E., 2020. Canstar.com.au. [Online] Available at: https://www.canstar.com.au/credit-cards/open-banking-live-australia/[Accessed 17 July 2020].

· Westpac , 2020. Open Banking. [Online] Available at: https://www.westpac.com.au/about-westpac/innovation/open-banking/ [Accessed 19 July 2020].