Open banking is the first government-led scheme under the Consumer Data Right (CDR) aimed at giving customers greater access to and control over their data.
One of the intended effects of the CDR will be that customers will be able to compare and switch between products and services, and will encourage competition between service providers.
Following the application of the CDR to the banking sector through open banking, the government has indicated it will then apply the CDR to the energy sector and the telecommunications sector.
The big four banks open up their data
Australia’s four major banks have opened up their data, meaning customers can share it in order to get the best deal possible on credit cards, savings accounts and other deposit products. Other banks will be expected to follow over the next 12 months.
Trasurer Josh Frydenberg said there has been significant interest by fintechs to become accredited data recipients with 39 providers currently in the process of being accredited by the ACCC.
"From 1 November 2020, the range of banking products available under Open Banking will be expanded, allowing customers of the four major banks to access and share their mortgage, personal loan and joint account data," Mr Frydenberg said.
Australian Banking Association chief executive Anna Bligh said customers will be able to give permission to accredited third parties to access their banking data while they search for a better deal on banking products.
“This sharing of data is a watershed moment for competition in the banking industry and, in time, will enable every Australian to use their data for their own benefit," Ms Bligh said.
“Customers can be assured that they will always be in control of how and when they share their data.”
Founder and chief executive of small business lender Lumi, Yanir Yakutiel, said open banking couldn’t have come soon enough for the lending industry. He said fewer bad loans is a benefit to everybody, and that his firm can make better decisions on who to lend to.
Mr Yakutiel said the coronavirus pandemic has shown that the banks are too slow at distributing funds to small businesses in particular.
“It would have been hugely beneficial to have this data made available at the start of the pandemic,” he said.
However, for businesses wanting to bank away from the big four, Mr Yakutiel said open banking doesn’t mean new entrants can immediately compete with the likes of ANZ, CBA, NAB and Westpac.
He said policy changes at the federal level are needed before a level playing field is established.
“First is franking credits. Open banking data being utilised will help somewhat, but the franking credit system heavily incentivises investment into equities,” Mr Yakutiel said.
“As a result, the Australian debt market is much weaker than it otherwise would be. This is now, regrettably, a heavily politicised policy, so change here will be slower than anyone in the industry would like.”
Another issue, according to Mr Yakutiel, is the issue of data ownership.
“While we can access more data now than ever, ultimately it still belongs to the bank. This is a curious state of affairs, as the business customers themselves are generating the data, the bank is merely collating and storing it,” he said.
“Creating a policy where businesses own their data, and can share it how and when they please, is the only real method of making sure bigger competitors don’t leverage data-driven advantages against smaller rivals, killing innovators and challenges to their lucrative status quo before they get off the ground.”