Australia is in a countdown to the beginning of a new approach to data in financial services with the introduction of Open Banking in July 2019. It is also creating a dilemma for privacy advocates and a competitive challenge for the major banks.
They will be the first institutions required to share customer data with accredited third parties in line with the consumer data right (CDR) announced by the Government last year.
The idea is that after one year the new data regime will be extended to other providers, thus opening up the broader industry.
Publicly, the big banks have had to be positive, or at least not negative, about Open Banking. Mutterings from inside the institutions suggest otherwise.
There are grumblings that the banks are being forced into giving up something, in customer data, which they believe is their intellectual property.
Their hesitation is in contrast to the enthusiasm of smaller banks, some of which have signed up to Open Data even though they are not mandated to do so. Macquarie Bank also launched its data platform in 2017.
The New Industry Normal
The original impetus for Open Banking came from the Productivity Commission, which identified that opening up access to data would be a catalyst to stimulate innovation and competition in the financial sector.
Fintechs and emerging banking players have understandably been enthusiastic about Open Data, and its inception has prompted a wave of hackathons among the fintech community in addition to some serious interest from U.K. companies, which have prospered under Open Banking at home.
For the banks, however, Open Banking is a challenge but one they need to respond to, if not embrace. Otherwise, they will be outpaced and outmaneuvered by a whole new generation of providers.
One response from the banks has been to ally themselves with fintechs and payments startups in an ‘if you can't beat them join them' strategy.
Of all the banks, Westpac has been the most active in this area, taking equity stakes in a range of different startups in areas from payments, human resources and also data itself.
A recent example is startup Hyper Anna, which has developed a “Q and A” data product for corporate users based on consumer products such as Siri and Alexa.
Westpac and NAB are also investors in another startup, Data Republic, which aggregates data from multiple sources and then makes it available to third parties for any number of uses and applications.
Open Data Woes
Although there has been some movement from the major banks in the innovation direction, they have a much more significant issue in upgrading their system to prepare for Open Data.
It will incur significant compliance costs and require investment in new IT because according to prudential regulator the Australian Prudential Regulation Authority (APRA) the big banks are woefully unprepared.
It is also an investment which couldn’t have come at a more inconvenient time. After years of doing as they pleased and making bumper profits, the banks are under pressure from a Royal Commission into their misconduct and can expect a raft of new restrictions and regulations flowing from the final report due next year.
For other financial services providers, the arrival of Open Data means something very different. It presents as a significant opportunity to gain access to data, the uses for which are only limited by the imagination.
To that end, some British companies which came out of Open Banking in the U.K. have already set up in Australia and are positioning themselves to be players in the local market as well.
Britain has been an acknowledged early leader in Open Data, and there is also a push for Australia to follow the U.K. regulatory model where possible.
It also means that U.K. companies have an opportunity to export their expertise to Australia and get a head start on new domestic players.
One early mover has been personal data company Digi.me, which has established an incubator in Sydney and is working with local startups on exploring new products.
Digi.me says its mission is to enable people to “take control of their digital life” and while this suggests new areas for commercial innovation it also speaks to the other issue around Open Data, which is consumer privacy.
The Privacy Resistance
A recent survey by Accenture found that two-thirds of Australians were unwilling to share financial data with nonbanks, with older people most resistant. At the same time, eight in 10 are unaware of Open Banking and what it might mean.
It has been fodder for privacy groups which still see the privacy issues of the new regime as being unresolved and creating an unusual coalition with the big banks in pushing back against the changes.
All this means that while July 2019 is the deadline, it might be a soft launch.
Speaking at a recent fintech conference in Melbourne, an official from the Australian Competition and Consumer Commission (ACCC) conceded that Australia might not be ready in time.
"There's an awful lot to do and a very tight timetable. I'm not saying it's without some risk or challenge," said Scott Gregson.
"While we're very keen to hit it, we're not going to be a slave to it at the same time. We're constantly going to review where we are as the ACCC collectively with other regulators and will continue to talk with the government about where those pressure points are."
The likelihood is that there will be some minimum viable Open Data product launched come July 1, 2019.
But as with many changes as fundamental as this one, it is likely to be an incremental change rather than a ‘Big Bang,' a pace which will slow down innovation but might satisfy the major banks and the privacy advocates.