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The dawn of open banking in Australia

Alex Johnston
Alex Johnston
Head of Solution Consulting, Refinitiv

Open banking brings a new era of competition to Australian financial services, with customer data now available to all banks. Our report from the 2019 Refinitiv Australian Regulatory Summit examined the opportunities and challenges presented by this new banking model.

  1. Open banking in Australia will create a competitive and level playing field between banks, fintechs and other financial services providers.
  2. The secure storage and sharing of data to address potential privacy and information security risks will be key to the success of the new banking model.
  3. Our Refinitiv report explores the key regulatory and market trends identified at the 2019 Australian Regulatory Summit, and how the introduction of open banking will impact financial services in Australia.

July 2019 saw the long-awaited launch of open banking in Australia.

The platform will revolutionize Australian financial services by giving individuals and businesses greater choice of products and services. It will increase competition among providers, and grant customers control and ownership of their data held by financial institutions.

The Australian government will launch open banking in phases over the next two years. Since 1 July, only the big four banks have been mandated to participate.

By no later than 1 February 2020, all major banks must provide access to consumer, account and transaction data regarding credit and debit cards, deposit accounts, and transaction accounts. By 1 July 2021, data on mortgage accounts, overdrafts, personal loans, business finance, leases, and asset finance will be made accessible on the platform.

Open banking in Australia

Open banking is the application of Australia’s Consumer Data Right (CDR) in the financial services industry. Under CDR, individuals and businesses can direct their bank to share information held about them to other providers.

The right adheres to four key principles: It must be consumer-focused, encourage competition, create business opportunities, and be efficient and fair to all.

CDR will soon extend to other industries within the Australian economy, with the energy and telecoms sectors following in the footsteps of financial services.

Open banking operates with the highest levels of privacy protection and security. Account data is only made available with the consent of customers.

While there is no definitive list of the products and services that open banking will be applied to, industry experts anticipate that the platform will cover four types of customer information, including loans and credit, product comparisons, account switching, and financial management.

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Individuals and businesses will access open banking through authorized apps or websites, which will allow third parties to access specific datasets that reveal a customer’s deposit and lending history.

Analyzing this data will enable third-party providers to provide more competitive offerings to customers. Information will be transferred between banks, apps and websites through the use of application programming interfaces (APIs).

Watch: How will data and data analytics transform the financial services industry?

Australian Regulatory Summit

At the 2019 Refinitiv Australian Regulatory Summit, speakers noted that with the advent of open banking, institutions can no longer use their own customer data as a key differentiator.

Currently, switching banks is time-consuming, and involves an array of administrative tasks that customers must execute themselves.

Open banking removes these barriers. Banks must now depend on product innovation to win and retain customers, summit speakers said.

Speakers at the 2019 Refinitiv Australian Regulatory Summit in Sydney.The dawn of open banking in Australia
Speakers at the 2019 Refinitiv Australian Regulatory Summit in Sydney

The platform will lead to more refined business models, particularly among small banks, and first-mover advantage will be key.

While the big four will continue to provide end-to-end integrated financial services, others might choose to focus on a niche strength. Providers with high brand equity could, for example, bundle the services of other banks, and retail them to customers.

Conversely, providers of innovative products could leverage the expertise of customer-facing retailers to sell their offerings. Technology firms can offer back-end solutions to both.

Trust in the financial sector

While the opportunities for customers and banks are significant, so too are the challenges.

Trust was cited by summit speakers as the number one impediment to participation in the open banking initiative. The Deloitte Trust Index 2018 revealed that only 21 percent of Australian customers believe their bank has their interests at heart.

And research published by Unisys in June 2019 found that 57 percent of Australians are seriously concerned about unauthorized access to their personal data.

Trust was cited by summit speakers as the number one impediment to participation in the open banking initiative. The dawn of open banking in Australia

Trust could be further eroded because open banking, as a concept, is complex and can be challenging to understand.

In the UK, where an open banking program has been rolled out since January 2018, two-thirds of consumers remain unaware of the platform’s purpose, Crealogix found.

Unless open banking in Australia is actively promoted and explained by the government and banks, the number of customers using the platform will be small, summit speakers agreed.

Compliance and KYC checks

The legislative framework for open banking in Australia is a work in process, and involves three elements:

  • The Consumer Data Right Bill, which was introduced to Parliament in February 2019.
  • The Exposure Draft for the Consumer Data Right rules, which have been provisionally outlined.
  • The standards for APIs, information security, consumer experience, and technical engineering are being developed by Data61, the nominated data standards body.

Regulation is overseen by the Treasury, while the Office of the Australian Information Commissioner handles customer complaints.

The Australian Competition and Consumer Commission (ACCC) sets the rules and accreditation criteria, certifies technical standards, and takes enforcement action when required.

The rules and standards that govern open banking in Australia are extensive, and will require significant resources to understand and embed them into the systems and processes of banks. Firms must ensure that their other IT systems are robust in areas such as data governance and security.

Open banking activity must be reported to ACCC on a monthly basis, and the regulator must be immediately notified when irregularities are identified.

Know Your Customer (KYC) obligations are less clear. The preliminary Review into Open Banking — known as the Farrell Report — stated that KYC should ideally only have to be conducted once, when an individual or company first uses the platform.

The report also acknowledged that KYC checks differ greatly from bank to bank, and that until there is a single standard implemented nationally, checks must still be carried out by all banks when first encountering customers.

Banking reinvented

By the time the full program goes live in two years’ time, the servicing models of banks will likely have changed significantly. No longer will customers be deterred from changing banks. Firms must provide a service that encourages individuals and businesses to be loyal.

Product innovation and heightened customer service are key to the success of this new financial services model, as is safe and secure customer data. Banks must also work hard to instill greater trust among customers.

Financial institutions that openly embrace open banking in Australia look set to win big. Banks that shun the platform will likely be left far behind.

For more information on the latest trends shaping Australia’s financial services industry, download our industry report