Open Banking goes live in Australia: What is it and what does it mean for me?

Phase one of open banking in Australia has now gone live, giving some customers greater control over their banking data and how it is used. So, what exactly is open banking and what does it mean for you? We take a look.
open banking
The first phase of open banking has now gone live in Australia. Source: JoeZ (Shutterstock)

On 1 July, 2020, the first phase of open banking was launched, allowing customers of the big four banks to securely share some of their banking data with other accredited banks and fintech organisations.

The launch of open banking was welcomed by the Australian Banking Association (ABA), with CEO Anna Bligh stating that the new scheme would allow consumers to “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,” she said.

Now that open banking has officially begun, let’s take a look at how it works and what some of the benefits and challenges may be around this scheme.

What is open banking?

According to the ABA, open banking gives you the ability to share your banking data (such as your transaction history and account balances) with third parties that have been accredited by the Australian Competition and Consumer Commission (ACCC). These third parties may be other banks, financial institutions or other authorised organisations such as fintech businesses. You control which third party can access your data and how they can use that data under the open banking framework.

How can open banking be used?

There are many ways you, as a consumer, may be able to use open banking to make the most of your data. For example, if you are looking to switch to a new bank for a savings account or sign up for a credit card, you would usually need to gather your banking documentation (such your transaction history and identification documents) to then apply at that bank either online or over the phone. However, with open banking, you could request to send this information from your existing bank to your new bank with a click of only a few buttons, potentially saving you time and effort on your application.

You may also choose to use open banking to give authorised providers, such as a comparison service or budgeting app, access to your data so they can provide product options, recommendations or services (such as alerts and budgeting tools) that are more tailored to your specific financial situation.

What types of data can I request to share through open banking?

As of 1 July, 2020, customers of the big four banks (ANZ, Commonwealth Bank, NAB and Westpac) can request and share their transaction account, deposit account, credit card and debit card data with an accredited data recipient. Accredited data recipients are the authorised providers who receive a consumer’s data after they have given consent for it to be shared.

Big four banks - CBA, WBC, NAB and ANZ
Customers of the big four banks can now share some of their banking data to authorised third parties. Image source: Vitalii Tairov, Canstar.

On 1 November, 2020, customers of the big four will be able to request and share data from their home loans, investment loans, personal loans, joint accounts, closed accounts, direct debits and scheduled payments, as well as payee data, with accredited data recipients.

Other smaller banks or authorised deposit-taking institutions (ADIs) outside of the big four will be able to opt into open banking over the next 12 months to July, 2021 so their customers can also request and share data.

Where can my data be sent and received with open banking?

With open banking, your banking data will be able to be sent and received by accredited businesses such as authorised banks, financial institutions and organisations. Most banks (or ADIs) are automatically included under open banking to receive and hold data. Non-ADI organisations, such as fintech companies who wish to receive data through open banking, will need to become accredited data recipients. They can apply for accreditation via the ACCC and will need to comply with strict requirements. 

What value could open banking deliver to consumers?

According to the ABA and Australian Government, key benefits of open banking may include: (1) helping you sign up more easily for certain financial products; (2) saving time in switching providers; (3) finding products more tailored and personalised to your situation; and (4) supporting you to have a more holistic view of your finances. However, with open banking still in its infancy, it may take some time for consumers to recognise the full benefits of the scheme.

1. Sign up more easily for certain financial products

Canstar finance expert Steve Mickenbecker said some borrowers who use open banking to share their data with a new provider may find it easier to prove that they can afford the loan or credit product they are applying for.

“Through open banking a new lender may be able to see your salary going into your account every fortnight and how much you spend of it, as well as whether you make your repayments on time for other credit products,” he said.

Mr Mickenbecker said by gaining this insight into your transaction history and account balances, the lender can then better assess your credit risk.

2. Save time switching from one bank to another

Chief Information Officer of Frollo, Tony Thrassis, who helped the fintech company gain accreditation quickly under open banking, told Canstar this scheme makes switching from one bank to another a whole lot easier.

“A lot of consumers don’t switch providers because of the inconvenience it can cause, so that means they could be paying more for certain financial products. But open banking can change that,” he said.

Right now, customers of the big four can use open banking to send their identification and transaction data from their existing bank to another one of the big four quickly using their bank’s mobile app or internet banking platform. This can make the process faster and simpler.

open bank account
Source: Rawpixel.com (Shutterstock)

As access to more data is made available through open banking, Mr Thrassis said the process of changing over your automatic debit arrangements may also become more streamlined.

“One of the things that can hold people back from switching banks was if they had direct debits attached to a certain account, such as to pay for the gym or their Netflix subscription, and it could require some manual work to switch those debits over to the new account,” he said.

However, from 1 November, Mr Thrassis said customers will be able to share their direct debit data through open banking, which means these direct debit arrangements may then be able to be transferred over to a new account in a few simple steps.

3. Find and explore products and services tailored to your situation

Another touted benefit of open banking is being able to use the scheme to access better price comparisons and product options that are tailored to your circumstances.

The Australian Government said most current comparison services rely on you answering questions about yourself so they can then come up with comparative products and services. However, they said these questions can sometimes be general, or you may not know the exact answers, which could affect the accuracy of the estimates or recommendations provided.

With open banking, the government said comparison services can access much more accurate information, as your real data is sourced directly from your existing provider. They can then use this information to provide a more tailored service.

4. Better monitor your finances

Mr Thrassis said financial management tools, such as the Frollo app, can use open banking to help provide customers with better insights and services to help them set goals and budgets.

“With opening banking we can bring together your banking data from a range of providers, along with public data about certain products, to give you [the consumer] a more holistic view of your finances,” he said.

Mr Thrassis said the data could also be used to help consumers keep track of their expenses and identify how they could be saving.

“For example, if you have a savings account with the option to get bonus interest, you could be sent a nudge (such as a message) to let you know if you are not fulfilling the requirements to get that bonus interest rate in time, so that then you can make that deposit or withdrawal,” he said.

How quickly will open banking be adopted?

At the time of writing, there are only two accredited data recipients under open banking, including Frollo, a personal finance and budget management company, and Regional Australia Bank. The ACCC said a further 39 providers have begun the process to become accredited data recipients.

With open banking still in its early stages and many data recipients yet to be accredited, some believe it may take some time for consumers to reap the true benefits of this scheme.

Senator Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology, told the Australian Financial Review in June that early adoption of open banking was expected to be modest, given the pressures the economy is facing from COVID-19. 

“There might be some impact on the speed with which data recipients will have consumer data right products available to consumers,” Senator Hume said.

“From a consumer’s perspective, I think it will be a slow burn.”

How is open banking connected to the Consumer Data Right?

The Consumer Data Right (CDR) aims to give consumers the right to share their data between providers through secure technology. According to the Australian Government, the CDR is designed to make it easier for consumers to compare products and services and access new and improved services. Consumers’ data is transferred directly between approved providers, following the Government’s framework. The CDR has been launched in the banking sector, with the energy sector to follow (and then, possibly, telecommunications).

What do you have to do to share your data via open banking?

You can start your journey with open banking through the accredited data recipient’s website or app. You can then follow prompts to share your data with a recipient. The CDR website outlines this process:

  1. Give consent. You will need to first give permission to the accredited data recipient provider to access your data. You will do this on their website or app through their CDR page.
  2. Perform an identity check. You will then be redirected through to your bank’s website or app CDR page and from there will need to verify your identity.
  3. Confirm data to be shared. Once your identity is confirmed and you are given access to that page, you will be asked by your bank to confirm what data you want to share, how you would like it to be shared and for what period.
  4. Share data. Your data will then be transferred electronically through an application programming interface (API) to the prospective data recipient in a machine-readable format. 
  5. Use the provider’s service. Once your data is shared, you will then be directed back through to the accredited data recipient’s app or website to begin using their service. For example, if you’ve decided to share your data with an accredited budgeting website, you’ll now be ready to receive information and alerts based on your real data.

Is open banking secure?

The framework for open banking has been approved by the Government and the first phase is now in motion, though there has been much discussion in the media around security and privacy concerns. 

Mr Mickenbecker said that although some consumers may be nervous about the security of the CDR, they should not forget that the ACCC is regulating this scheme, and has put in many safeguards to protect consumers and their data.

“Data recipients have to jump through many hurdles to be approved, and need to satisfy all sorts of requirements with their systems and security,” he said.

Mr Thrassis said in order for Frollo to gain accreditation as a data recipient, they had to answer a range of security and data privacy objectives, as part of a “very stringent” accreditation process through the ACCC.

He also pointed out the CDR was aiming to empower consumers, with consent vital.

“Customers will need to confirm their consent preferences from the very beginning, and after 12 months data recipients will need to delete any data they have unless a customer gives permission for that recipient to continue using it, ” Mr Thrassis said.

Consumers will also never be asked for their current online banking password when accessing the CDR to share content.

Data protections and standards development for open banking is led by CSIRO’s Data61, while the Office of the Australian Information Commissioner (OAIC) oversees privacy protections for the scheme. For more information on the privacy safeguards for CDR, you can visit the OAIC website.

What are your rights under open banking?

Data holders and accredited data recipients must follow strict regulations under the CDR to protect your data and privacy under open banking.

According to the Australian Government, providers must make it clear on their website or app:

  • what information you’re sharing and how it will be used
  • who will have access to your data
  • how long they’ll have access to your data for
  • how you can manage and withdraw consents.

Under the CDR rules, you can withdraw your consent to share data at any time either through the data recipient or data holder. If you do withdraw your consent, the data recipient must stop using your data and delete or de-identify any previously collected data.

If you think your data has been mishandled or you think your privacy has been breached when using open banking, you can make a formal complaint to the data recipient or data holder. If they do not respond or you are not satisfied with their response, the Australian Government said you should:

What should I consider before using open banking?

If you are currently a customer of one of the big four banks, and are looking to use open banking to share your data, Mr Mickenbecker said there are a few considerations before jumping in.

“As long as you are comfortable with the security of your existing bank and the data recipient, and can say that they have been scrutinised by the relevant authorities, then it should be okay for you to use,” he said.

What you do need to ask yourself is whether you are comfortable with particular recipients receiving your data – that is the key.”

Mr Mickenbecker said consumers should carefully consider why they want to share their data and for what purpose, and then try to use it to their advantage.

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