What is open banking in Australia?
What is open banking?
Open Banking in Australia provides consumers the ability to share their banking data (such as transaction history and account balances) with third parties that have been accredited by the ACCC.
Examples of accredited third parties include : the big four banks (NAB, Westpac, Commbank & ANZ), retail banks, credit unions, financial institutions and other authorised organisations such as fintech businesses.
The consumer then controls which third party has access to their data and the way in which it can be used. Organizations are also prohibited from selling or sharing this personal information for other purposes.
How does open banking work?
When a customer signs up for a new service – they will be directed via a web-based or in-app process to give consent for their data to be shared with the bank or accredited financial institution.
From there, the customer must perform an identity check – confirming which parts of their financial data they’d like to share, in what ways they consent it to be used & for what period it can remain stored on servers or in the cloud.
After this, an API transfers the hashed data – making it more difficult to interpret & misuse should it be intercepted by hackers
What is the Consumer Data Right (CDR) ?
The CDR was introduced by the Australian Government on November 26th, 2017 to give consumers greater access & control over their data. It was also developed as a response to a greater need to assist consumers which between service providers.
The aim of the CDR is to encourage competition between providers & to foster innovation for new digital services.
Although the Federal Treasury is considered the leading overseeing body of the CDR via the DSB (Digital Standards Body) – the ACCC & OAIC (Office of the Australian Information Commissioner) all have responsibilities in overseeing & enforcing the Consumer Data Right. Read more about the CDR here
When did open banking begin?
Open banking is currently being implemented over a three stage role out:
Phase 1 went live on July 1st, 2020 for the major banks applying to savings accounts, chequing accounts, debit cards, transaction accounts & credit cards. On July 1st, 2021 – Phase 1 also went live for other non-major banks and accredited financial providers
Phase 2 includes home loan, personal loans & mortgage offset accounts. This went live on November 1st, 2020 for the major banks. On the 1st of November, 2021 – non-major banks & accredited financial providers will also have access to Phase 2 data
Phase 3 extends to other products including but not limited to lines of credit, business finance, retirement savings, trust accounts & overdrafts. Phase 3 was implemented on February 1st, 2021 for the major banks and is due to come into effect on February 1st, 2022 for non-major banks.
What are the benefits of using open banking?
1) Easier to compare financial services & receive competitive pricing
Consumers will be able to more easily compare products from different banks (or third party service providers) – opening up the market & increasing competition
Australia is currently ranked 3rd in terms of final adoption rate of open banking, behind the UK & Canada. As adoption increases – the benefits to Australian consumers should only increase in turn.
2) Easier sign up for financial products
Through open banking – it will be simpler and faster for consumers to prove they are financially suitable for the products they are applying for.
At the click of a button, consumers can share data like their transaction & repayment history, account balance & salary payments; allowing banks & financial providers a much more efficient opportunity to assess credit risk
3) Ability to switch between providers faster than ever before
Consumers through open banking will be able to share most of the data firms need to assist in swapping providers for a credit card, loan or mortgage.
In addition, many consumers avoid switching financial products due to the automated debits or payments that have associated with those accounts. These will also be able to be reconciled & updated to a new provider in a few simple steps
4) Better financial management
Consumers can use 3rd party technology or products provided by the major banks to view & monitor their entire financial situation across all the products & services they use
Read more about the benefits of open banking here
What does open banking cost?
Open banking is entirely free to consumers.