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Australia gets ready for open banking

Traditional banks and fintech firms alike will need to bite the bullet in the crucial startup period if Australia’s open banking regime is to succeed

Australia’s big four banks are the first financial organisations to be prised open by the new Consumer Data Right (CDR) legislation, but the country’s new open banking regime doesn’t really heat up until early 2020.

The tip of the spear for open banking in Australia is the newly legislated CDR which gives consumers regulated access to and control over the data held by service providers.

Banking is the first industry to come under CDR and will be followed by the energy and telecommunications sectors.

The CDR system is being supervised by the Australian Competition and Consumer Commission (ACCC), which holds the timetable for the regulatory roll-out.

Australia’s open banking timeline is, at first, skewed towards ANZ, Westpac, Commonwealth and NAB which all dominate the market. Since July 2019, they have been required to make generic product data available on what are deemed phase one financial products.

These include savings accounts, call accounts, term deposits, current accounts, cheque accounts, debit card accounts, transaction accounts, personal basic accounts, GST and tax accounts, as well as credit and charge cards for both personal and business.

Australia’s open banking action will only get real in February 2020 when the big four banks and accredited data recipients must make account, transaction and product data available on both phase one and phase two products.

Phase two

Phase two covers the juicy end of Australian finance, such as residential mortgages, mortgage offset accounts and investment mortgages.

When the mortgage products come online, it should become far easier and faster for customers to shift lucrative home loans from one bank to another.

Meanwhile, the marketplace for credit and savings accounts should also become more fluid. The ACCC has been looking for fintech guinea pigs that will become accredited data recipients and help test the operations ecosystem surrounding the CDR legislation.

The regulator has received 40 expressions of interest from the local financial technology (fintech) community.

It recently revealed that ten firms will test out open banking systems in the run up to February 2020, chosen based on criteria such as their ability to meet the accreditation and a readiness to participate in testing, among others.

Participating firms

The participating firms range from the so-called neo banks, such as 86400, that require a banking licence, to Wildcard Money, which aims to help millennials live within their means by drip feeding them a daily, budgeted amount from an interest bearing transaction account.

“Open banking will make it incredibly quick and easy for new customers to set up and personalise their Wildcard account,” said a Wildcard Money spokesperson.

“A customer can consent to sending Wildcard details about their transaction history, payees and billers, which can be used to personalise their account and help make their pay cheque last until they next get paid.

“It will also make it easier for customers to switch to using Wildcard as their primary transaction account,” the spokesperson said.

But hard yards lay ahead for Wildcard Money, both during the ACCC’s testing phase and in educating consumers about the benefits of an open banking regime. “Integrating with the open banking scheme will require a lot of work and rigorous testing,” the spokesperson said. “However the ACCC’s efforts have ensured that everything is running smoothly so far.”

The Wildcard money spokesperson said it was up to participating fintech firms to get the open banking message across.

“Although open banking offers many benefits to consumers, it’s up to fintechs like Wildcard to heavily promote these benefits and make it compelling to potential customers. This is evident by the recent roll-out of open banking in the UK, where awareness and understanding of the scheme is still very low.”

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Identitii is another one of ACCC’s 10 guinea pig fintech firms that provides a secure payments ecosystem that uses blockchain and tokenisation.

“Essentially what we do is add information to payments using tokenisation to help reduce the amount of payments held up for manual investigations, which in term frees up more funds faster so our (and the bank’s) customers can do more business,” said Identitii CEO Nick Armstrong.

“Open banking and the API economy means we can now link this service into previously unavailable areas such as payment initiation and status, and provide an even more seamless service for both the bank and its customers,” he said.

Armstrong said there is general understanding about the new CDR legislation, but believes more education is needed around specific rights under CDR and how they will work when access to data becomes widely available.

“Specific guidelines around your rights and how they have changed probably need to be made clearer and more available in general,” he said, adding that an even bigger opportunity is around raising awareness of what the CDR means for corporates and their services.

“Under the CDR, company data opens up, too,” said Armstrong. “And we are starting to see new products and services around corporate banking pop up through third-party channels as well.”

Rewriting the banking rule book

Banks, especially the big four, are on the nose in Australia following a Royal Commission last year that lifted the lid on many dodgy practices and saw a number of big four bank executives fall on their swords.

The arrival of open banking coincides with tougher customer protection regulation in the wake of the Royal Commission. In July 2019, banks came under a new consumer protection regime in the form of the Australian Securities and Investments Commission approved banking code of practice.

Among a slew of new measures, this code prevents banks from tempting consumers to go into further debt with unsolicited credit card limit increase offers, and provides for jargon-free and fairer loan contracts for small businesses.

The code also feeds into open banking by making banks provide customers with a list of direct debits and recurring payments to make it easier to switch banks.

“We’ve completely rewritten the rule book for Australia’s banks,” Australian Banking Association CEO Anna Bligh said in a statement. “The banking code of practice has strong protections for customers, serious consequences for breaches and strong independent enforcement.”

“Banks understand they need to change their behaviour and this new rule book represents an important step in earning back the trust of the Australian public,” said Bligh.

The lack of trust of trust in the traditional banking sector, coupled with simpler and faster digital tools for shifting and integrating financial products, could stimulate Australia’s open banking market in the crucial startup period.

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