Consumer Credit

Open banking in Australia

So, what’s the big deal about the implementation of open banking in Australia… and how does it work? In this article I’ll explain how open banking will change our financial landscape – and what credit risk managers should be thinking about now.

By Jarrid Ohanessian*

I’m often asked about the implementation of open banking in Australia – and how it all works.

Open Banking is the first instance of what is called the Consumer Data Right (CDR). In time we will also have Energy and Telecommunications as CDRs – the idea is that these data sets are the consumer’s data and they can use it to their advantage to benefit themselves through, for example, cheaper services. Put simply, open banking is a significant shift in approach which will give consumers control over what they can do with their own data.

It takes us beyond existing financial technologies and into a fully regulated environment where consumers have much more choice over a wide range of financial services and products.

The rules that govern open banking have been put in place by the ACCC – and are currently being finetuned. The process of implementing open banking is well underway, and the ACCC has handed it over to The Treasury.

Importantly, banking is the first industry where CDR will enable consumers to decide who can view and utilise their data, for how long, and for what purpose – and they can revoke this access at any time. This puts consumers firmly in control and creates a standardised customer experience, not only making it easy for consumers to use, but inspiring trust in open banking itself. It’s a significant shift from the status quo today, where the banks have control.

With the Consumer Data Right (CDR) now live, consumers can share their banking data with third party institutions such as banks, credit unions, fintechs, online lenders and money management apps. It’s a great way for them to share their data, giving them more control and encouraging widespread competition. There’s a roadmap in place for full implementation, with all banks slated to be sharing their data into the ecosystem by February 2022.

All this data is great for consumers, but it is also great for providers of financial products because they can make cheaper, quicker, better decisions and create products tailored to the individual. This data will level the playing field between large banks with the expertise and scale to do very smart things and the fintechs with the agility and smarts … to do very smart things. Everyone will benefit from the resultant innovation.

With a direct channel of access to your data, financial service providers will be able to supply faster, highly tailored advice. You’ll be able to safely link your data to more applications to receive advice, automate processes and ultimately make better decisions in a less timeconsuming way. ➤

Immediate usages include: — understanding spend habits, — budgeting, — determining affordability and understanding investment options, — switching services with less hassle, and — ability to enter arrangements to ‘set and forget’ about day to day banking tasks. Proposed developments will expand these use cases to even further simplify banking and payments.

Here’s the important bit though – it’s not just good for consumers, it’s good for lenders too. Open banking means consumers can share their banking data at the tap of a button. It gives all lenders the same level of access to customer data – something that was previously very much in the domain of the big banks.

Lessons from the UK

To be completely successful, open banking requires full utilisation and cooperation from all players, and this was pioneered in a big way in the UK. As a result of the UK’s 2018 Second Payment Services Directive (PSD2), hundreds of banks and fintechs have joined this new ecosystem, with more than 2.5 million consumers and businesses now using open banking products.

With a strong and centralised regulatory framework and strict enforcement of technical and customer experience standards, the UK’s open banking system directly inspired the Australian ecosystem. While this is a step forward, the UK’s open banking system has been operational for three years now but it’s still very much a work in progress.

To encourage higher participation and more data sharing and innovation in Australia, consumer education and trust will be the key to the successful implementation of open banking here.

What should you do now?

Accreditation is the door financial institutions need to go through in order to get into the open banking room. Gaining accreditation for direct access to open banking data is currently a lengthy and expensive process, which includes meeting all of the obligations, completing a submission and a review process. Having the highest levels of information security to deal with all of this data securely is mandatory.

Once accredited, you can then either build your own infrastructure, or partner with a third party. illion has been through the process ourselves – twice in fact – and it’s definitely something we’re keen to help our customers navigate.

We’ve written before about the significant cost accreditation imposes on businesses – this puts at risk the benefits of CDR not being fully realised. Spending an average of $250,000 and many months to get accredited, especially at this early stage, can give organisations a first mover advantage, but many organisations will not have the resources to do this. illion’s Open Data Solutions and Credit Simple are now ADRs

– Accredited Data Recipients – a process that took us nearly 4 months from end-to-end and involves ongoing hosting and maintenance too. Why did we accredit twice? We stand for the consumer via Credit Simple and we help financial institutions via Open Data Solutions.

The ACCC knows that this cost does present a barrier in the uptake of open banking, proposing a second tier of ADRs known as ‘Trusted advisors’, with a less involved accreditation process and a restricted level of data access, but this could still be a long way off. We’ll continue to advocate for all users of open banking data to have all the information that is needed for them to serve their customers.

Using an intermediary

Although the rules and legislation are not yet clear for accreditation, it makes sense that once you are ready to consume open banking information, you should focus on growing your business, rather than building the technology that is required to access this information.

As an option, consider partnering with an intermediary like illion Open Data Solutions – we can provide a full open banking solution and manage the process on your behalf. Because the user flow and customer dashboard are standardised, we’ve built a product that can be white labelled for your businesses with significantly less time and cost involved and no ongoing maintenance, but with rigorous security and technical support provided.

Where to from here?

Get in touch with us and start your open banking journey. Whether you’re looking to gain full accreditation or partner with us for a white label solution, illion’s Open Data Solutions has the tools to support you.

*Jarrid Ohanessian GM of Open Data Solutions illion E: Jarrid.ohanessian@illion.com.au

SIDEBAR:

There are significant benefits for lenders that can be overlooked. Benefits of open banking include: 1. Speed. Access to customer data is in real time, shared directly with the customer’s consent, which means you can process applications more quickly and efficiently. 2. Personalisation. Ongoing access to live data feeds allow for enhanced services for consumers to choose to adopt. 3. Compliance. As data is more accurate and timelier, complying with responsible lending obligations can become much more straightforward.

Let’s look briefly at each of these in a little more detail…

1. Faster, more efficient data sharing With customer data shared directly and in real time, open banking makes it faster for consumers to apply for banking products or switch institutions, and get approved – all it takes is a few clicks to share their data.

This gives lenders the ability to process applications quickly and efficiently, significantly reducing the risk of losing any customers already in the pipeline.

Lenders can be certain of these faster processing times and use them as a selling point, which can also aid in acquisition of new customers.

2. A more personalised experience Every day many of us interact with various forms of social media and generate plenitudes of data which constitutes our online persona. Have you ever asked for a copy of that data? Tech giants are obliged to provide it, but a 600-page pdf document is hardly useful. I want to be able to approach my favourite apparel stores with that data and be told what I might like to buy. The consumer data right not only gives individuals the right to their data but will ensure it is in a useful format.

With that data, many of the friction points experienced throughout the customer lifecycle may be alleviated.

Data aggregation services have already been adopted to provide: – Faster onboarding – Importing of bank profile details from an external source – Faster precision and less room for human error – Uniform decision making with greater transparency – Appreciable customer insight – Tailored recommendations.

As data sharing increases visibility we draw closer to provision of better goods and services.

3. Meet your responsible lending obligations With more precise transactional data, it’s possible to make better decisions about the suitability of a loan for a particular customer.

Open banking provides CDR information quickly and digitally. When combined with data enrichment capabilities, such as illion’s categorisation and affordability analytics, lenders can quickly identify spending behaviour on specific income and expense buckets and identify any red flags.