With little more than six months until Open Banking is introduced in Australia, financial institutions need to prepare for new compliance, technology and operational processes, but also for new opportunities to emerge from the new data economy.
Open Banking is the latest policy and technology innovation at the forefront of the evolution of the financial services industry, designed to put customers in control of their data. Through the use of Application Program Interfaces (APIs), banks and financial institutions will be provisioning open access to customer banking data, and facilitating the use of ‘open source’ innovation and product development to create more personalised experiences and new, customer-focused services.
In May 2018 the Australian Government proceeded to implement Open Banking following recommendations from an independent Australian Open Banking Review by law firm King & Wood Mallesons. For Australian banks this means returning ownership of data to their customers, starting with data from debit and credit card deposit and transaction accounts, then eventually encompassing all banking products. The Government’s goal is to boost innovation through fairer and more personalised banking services, allow customer to compare and seek ‘better deals’ and ultimately, to stimulate greater competition in the banking industry.
The Australian Open Banking movement has been influenced by global shifts in banking legislation, particularly the European Union’s adoption of the revised Payment Services Directive (PSD2), General Data Protection Regulation (GDPR) and the UK’s Open Banking regime. PSD2 legislates a push to drive innovation, product development and integration in the payments market by leveraging online and mobile payment data in an Open Banking world. The UK Competition Market Authority (CMA) issued a mandate requiring the nine largest UK banks to allow licensed start-ups/developers direct access to their data (through Open APIs) with the intent to increase competition in financial services and to provide better outcomes for consumers and small businesses.
Notwithstanding the move to Open Banking has been influenced by overseas experiences and models, Australia is also exploring some differences, with the Consumer Data Right (CDR) meaning Open Banking will extend to other sectors, the concept of reciprocity of data flows between data holders and recipients (i.e. two-way), as well as being ‘read-only’ (information exchange) from day one.
With the Open Banking Regime to be deployed in Australia in July 2019, banks and fintechs will be looking to gain the upper hand in a new banking landscape. Similarly retailers, start-ups, technology players and others will be investigating how they can gain access and benefit from the valuable customer data the banks preside over today.
Since accepting the recommendations of the Open Banking Review in May 2018, a collaborative network of Australian statutory and regulatory representative groups have taken action to build the transformation framework for enabling Open Banking. The ACCC, the RBA, ASIC, and APRA share responsibility to support the reforms required to deliver Open Banking and as such, are under pressure to deliver the required clarity for industry participants to be ready for July 2019.
One critical legislative artefact which will ultimately govern Open Banking is the CDR (as mentioned earlier). The CDR is Australian legislation which gives customers a right to control and direct the personal information that they already share with their bank, and allow access to third party service providers and others they trust. This gives customers freedom of choice and convenience in managing their financial services, confidence in the use of their data, and allows customers to independently assess and determine the value of their data. Implementation of Open Banking in Australia will be phased to incrementally introduce the effects of CDR into the industry and to customers, starting with the major banks on 1 July 2019.
The disruptive implications of the Australian Open Banking regime creates both significant opportunities and challenges for both existing and emerging players:
Australian financial institutions will need to be flexible in their approach to adapting to the Australian Open Banking regime due to the uncertainty in how the regulatory, competitive and security standards will develop. There is no doubt that a lot of activity will need to be undertaken by the majors to prepare for and be ready for next year. However, given the intent to broaden the regime to other sectors, this does present new opportunities for banks that see Open Banking as more than a compliance requirement.