Open banking is now here, having been passed by Federal Parliament. But what does this new legislation mean exactly, and what does it really mean for Australian SMEs and consumers?
Open banking is the common term for the Consumer Data Right Bill, which was passed in Canberra on Thursday (1 August 2019).
Introducing the bill’s second reading in the lower house on 24 July, Treasurer Josh Frydenberg (pictured) proclaimed that “with this bill, Australia becomes a world leader in implementing an economy-wide right for consumers to access and use data that businesses hold about them”.
“This important reform will provide individuals and businesses with a right to access data relating to them and to authorise secure access to their data by accredited data recipients,” he said.
“It will also enable data about products on offer to be available in machine-readable form.”
Mr Frydenberg continued: “The consumer data right is a game changer for consumers and small businesses. It will enable consumers to better harness their data for their own benefit. The consumer data right is a fundamental structural reform that will drive competition and improve the flow of information around the Australian economy.
“And the right will incentivise Australian entrepreneurs to develop new products and applications that reach more consumers and are better tailored to their needs.”
The Treasurer added that, for SMEs, the new laws will “allow for more effective budgeting tools that can deal with data in real time and help them manage their cash flow and working capital more effectively than they can do today”.
What does it mean for you?
In essence, consumers and SMEs will be better able to shop around for the best and cheapest financial products and services, as the new provisions make it easier for them to access data such as their repayment histories to show prospective new providers.
Consumers will also have more direct control of which companies and bodies are given their personal and financial data – and on what terms.
According to KPMG partner Brett Watson, open banking “puts power in the hands of consumers”.
At the same time, he said the laws will enable Australian fintechs and smaller financial services providers better scope to compete against the major players.
“Open banking of a more limited scale already exists in the UK, India and several European nations. We are already seeing some fantastic innovation in these markets from apps that enable users to aggregate and manage financial accounts across multiple providers, to sophisticated yet nimble SME lending services,” said Mr Watson.
“Banks and others are also using the opportunity to understand new and existing customers better, make faster and better-informed credit decisions, and enable easier switching.”
Budgeting platform Moneytree called the introduction of open banking “a defining moment” for Australians – both consumers and businesses.
“The Consumer Data Right gives all Australians the ability to direct the use of their data on their terms for their best interests. It will also enhance data privacy and security, as explicit consent is required to share data,” its executive director and CTO, Ross Sharrott, said.
“[It] will transform how individuals and businesses value and use data, and will enable organisations to take the innovation and personalisation of services to an unprecedented level.
“While banking will be the first industry to implement the CDR as part of the move to open banking, the CDR will eventually be applied across the entire Australian economy. Forward-thinking organisations should start considering how they can incorporate the CDR into their business strategy.”
Meanwhile Anna Bligh, head of the Australian Banking Association, said that Australians will now find it easier to “get a better deal” on financial products.
“Empowering customers with the ability to use their data to drive a better deal on banking products has the potential to dramatically increase competition and foster innovation across the industry,” she said.
“Passing this legislation for the Consumer Data Right provides the foundation for these reforms to be delivered.
Adam Zuchetti is the editor of My Business, and has steered the editorial direction of the publication since the beginning of 2016. Before joining My Business, he worked on fellow Momentum Media titles The Adviser and Mortgage Business.
The two-time Publish Awards finalist has an extensive journalistic career across business, property and finance, including a four-year stint in the UK. Adam has written across both consumer and business titles, including for News Corp Australia and Domain.
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