Australia’s open banking regime will change the power dynamic between consumers and their banks and could eventually allow fintechs to initiate transactions on customers’ behalf, says Paul Wiebusch, a financial services partner at Deloitte.

Open banking gets underway from July 2019 and while the government hasn’t released details of its proposed regime, strong pointers to how it will look can be found in the government-commissioned Review into Open Banking, by King & Wood Mallesons partner Scott Farrell.

The Farrell Review, as it has become known, was commissioned as part of a government move to a broader Consumer Data Right in Australia that is expected to eventually encompass telecommunications and electricity companies as well.

“Open banking is all about changing the power that comes from customer transaction data where currently your bank has this information and uses that to do a credit assessment on you. They’ll use that to offer you services. They’ll look at other services that might be of interest to you beyond what you currently have,” says Wiebusch.

“But, by giving that now to the customer and saying that this data ultimately is owned by the customer, it changes that power dynamic.”

Under open banking, customers will be able to ask their bank to supply their transaction data to a third party such as a competitor or a FinTech, who might use it to see if they can offer the customer a better deal on loans or credit cards, for instance. It could also lead to new models for banks, where they operate as market places for financial services instead of trying to supply everything themselves.

Access some, but not all, areas 

The review suggests that the regime includes transaction data and may exclude value-added customer data such as that which results from ‘material enhancement’ through insights, analysis or transformation by the financial institution. Aggregated data sets and Know Your Customer data should also be excluded.

Open Banking should require informed, explicit customer consent, Farrell says in his report. “Data should only be shared when the customer has given an explicit direction to the data holder to do so,” he writes. “Customers should be notified of the data they are sharing and be able to revoke access easily.”

Australia’s open banking regime will start in July 2019, when the four major banks will have to give customers data on their credit and debit card, deposit and transaction accounts. Mortgage data will be available from February 2020 and the remaining data in July 2020.  All other banks will have an extra year to comply with each step.

The review recommends Australia initially adopt only a ‘read access’ data regime, which will only allow customers to share their data. The UK, by contrast has adopted read access and ‘write access’, which will allow a third party to initiate transactions on the customer’s behalf.
Wiebusch notes that the Farrell review’s initial Open Banking specification doesn’t preclude the possibility of providing write access in the future.

Realistically, however, that is some way into the future, because the full regime would need to run for a full year – from July 2021 – before it was possible to review how it had been working, if it was sufficiently secure, and if there was sufficient confidence in the regime from consumers to introduce write access as well, he says.

Consumer education needed

Peter Jones, a partner at law firm DLA Piper, who works in IT, telecommunications and financial services, says the way open banking is intended to operate will be flexible and principles-based, including operating through directions from the relevant federal minister rather than all requirements being enshrined in legislation.

“The benefit of this approach is that it provides greater flexibility and obviously the ability to change the regime as technology changes, as processes change, as behaviours change, without having to go through the legislative process,” he says.

The Farrell Review envisages that only accredited entities should be able to receive open banking data.

Jones says accreditation of data-receiving entities will reduce the possibility of a mal-actors creating "phantom" FinTechs and using these vehicles to gather consumers’ data for criminal or other purposes.

Likewise consumers will also need to be educated on the value of open data and how to benefit from it. A risk is that offers from FinTechs or other accredited entities may not be fully understood and access to data provided without clear benefit.

However, if the experience of the UK is any pointer, consumer awareness of open data might be low.
UK consumer research company Which? conducted a survey in September last year – just three months before the UK open data regime was to be introduced – and found that 92% of consumers hadn’t heard of it.

Further, half of consumers said it was unlikely they would consider sharing their financial data, even if it meant that the products and services offered were more suited to them.
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