July 1, 2019, was the first milestone in rolling out Australia's Open Banking regime. While it might have begun with a whimper, it is expected to have a transformative impact. Not just in banking, but across a wide range of industries.
The first phase in what will be a gradual rollout began this month with a pilot project. The Big Four banks allowed customers to access their data and share with third parties. They include financial services providers, and soon telco or utility providers.
The idea is that with one click, Australian consumers can share their transactions, deposit history, credit card data and personal information with whoever they chose.
It increases consumer convenience. It also ushers in a more competitive landscape while fostering innovation. Switching providers and comparing products will be much easier.
Customers with good credit histories can enjoy lower interest rates on financial products. It is because providers will have a complete picture of their behavior.
People with profligate spending patterns and bad debts can expect higher interest rates. In some cases, they may even struggle to get finance.
Behave or Lose Out
This is starting to happen already. New finance player Symple Loans classifies customers into six rating tiers. Customers with an A rating can access interest rates of 5.99%, while those rated F are charged 25.99%. Open Banking will help providers to score more accurately, and also – theoretically - more fairly.
There is also a significant regtech dimension. The recent Royal Commission into bad behavior by the banks identified many cases in which inappropriate products were sold. Greater transparency on customers can play a role in responsible lending practices.
Open Data was always going to begin slowly. People expect it to gain momentum eventually. But one key reason for the slow start: the Federal Parliament in Canberra is yet to pass critical legislation, the Consumer Data Right Bill.
At the core of Open Banking is the premise that instead of belonging to the banking institution, a person’s financial data actually belongs to them. It is theirs to do what they like, and that includes not sharing it if they don’t want to.
Legislation to enshrine this principle in the law is a pre-condition for Open Banking. The Parliament has been delayed by the May 2019 general election. With that out of the way, the Government is dealing with a legislative backlog, the Consumer Data Bill included.
In the short term, this limits the advent of Open Data to a pilot project between the Big Four banks and Government owned digital agency Data61, in which the performance, reliability and security of the Open Banking system will be tested.
Without the passage of the consumer legislation, the data which can be shared will be generic and anonymous. It won’t be actual consumer data.
Westpac, which was involved in the design of the system, has voluntarily shared some data through APIs. It has also released generic product data in support of the new regime.
Creating New Waves
In some ways, Australia is following the lead of the U.K. on Open Banking, which began in 2018. But in other ways, it is going beyond.
In the U.K., 250 companies have enrolled for access to Open Banking data. But so far the initiative only covers payment accounts for the largest banks. In Australia, the data will cover loans, mortgages and investments.
Australia's Open Banking regime does not exist in a vacuum, but rather in the context of ongoing and broader change.
In ethical terms, the banking industry has also just implemented a new code of practice, driven by the Royal Commission. It enshrines customer rights in the banking industry of the 21st century.
The key to further change, however, lies in the technology. Australia’s New Payments Platform (NPP) has been up and running for around 18 months now, and is the next-generation infrastructure to foster the world of real-time payments across the economy.
It is through the combination of the data and real-time processes that the significant changes will come, being catalysts for a next-generation of applications and products. They will save time and money, and deliver efficiencies for companies across supply chains and at the point of sale.
A Matter of Time
All of this is happening slowly now, but can only gather pace. The Reserve Bank of Australia, for example, last week rebuked the big banks for the slow uptake of the NPP, demanding they accelerate its use.
Once that happens, and after Open Banking starts following the passage of the Consumer Data laws, we can expect a revolution in Australian financial services.
Come 2030 or so, the landscape will be unrecognizable. Companies which are yet to be founded will dominate the market with products we can only begin to imagine.
So while Open Data might have started with a whimper, at some stage in the not too distant future, it's all going to go bang.