Following in the footsteps of the European Union’s Payment Services Directive (PSD2), the Consumer Right Act (CDR) is a recent Australian law that gives consumers more control over their own data. CDR lets consumers decide what types of data they’d like to share, and which accredited third party providers they’d like to share it with.
The law is set to roll out in phases across different sectors in the economy, starting 01 July 2020 in the banking sector with open banking, followed by the energy sector, and potentially the telecommunications sector. As different data types are made available for consumers to share with third parties, they’ll be able to receive better services informed by their unique data profiles.
What Is the Consumer Data Right Bill?
Under the Consumer Data Right (CDR), consumers may give permission to start sharing their data with select organisations who have been accredited by the Australian Competition and Consumer Commission (ACCC). The ACCC has been tasked with implementing the CDR system across sectors, accrediting third party providers known as “accredited data recipients,” and enforcing CDR rules.
The law follows the Australian Competition and Consumer Act 2010 that sought to promote competition, fair trade, and provide protection for consumers.
Since CDR gives consumers more control over whom they choose to do business with, increased competition is expected in certain markets, but especially in banking and FinTech. Currently, most Australians are customers of the country’s big four banks ANZ, NAB, Westpac, and Commonwealth Bank.
The introduction of open banking lets consumers more easily change their banking provider, get better pricing for products, or simply receive a service from a third party app they otherwise didn’t have access to. So banks must rise to the occasion and start partnering with FinTechs to provide better products and services to their customers, or risk them leaving later on for another provider or FinTech in the future.
The Impact of the CDR on Australia
The CDR will transform how consumers currently use banking services, and lead to competition, collaboration, and innovation from both banks and FinTechs who have the expertise, data, and software to create intuitive financial tools.
It’s important to remember that under CDR, consumers may only share their data with accredited third party providers, and organisations can only be accredited by going through the strict accreditation process overseen by the ACCC. This is to ensure all accredited data recipients meet the technical and security standards for the open exchange of consumer data on their platform.
As FinTech companies go through accreditation, banks and other financial institutions must have certain types of “open banking ready” financial data available for customers to start sharing by certain dates in the years to come.
From 01 July 2020, customers of the major banks can share their data with accredited organisations for deposit and transaction accounts, as well as credit and debit cards.
From 01 November 2020, customers of the major banks will have the option to share their data from home loans, joint accounts, personal loans, and offset accounts with accredited organisations.
From 01 February 2021, customers of the major banks can share their data for investment loans, business loans, overdrafts, case management accounts, retirement savings, foreign currency accounts, and other types of data.
Benefits of Consumer Data Right
Control over your data - Your financial data is your own unique data full of insights like spending and saving habits. You can now share your data with a third party data recipient to extract those insights and visualize them for you in easy to use and understandable dashboards to better keep track of your path to financial wellness.
More choice - When you share your data, it can be used to provide you more personalised and relevant product and service recommendations based on your real financial situation. You’ll also be able to compare prices of products and services from other providers, and make the switch to their services more easily.
Protected data - Open Banking is overseen by the Australian government through the ACCC, and the accreditation process for third parties is rigorous to ensure the strongest security protections are in place. You can have peace of mind your data is protected and secure as you start sharing it with accredited providers.
Why Is Data Sharing So Important?
Data sharing breaks down the barrier consumers once had on access and control of their own data. By giving them the power to share their own data and with whom they choose, consumers are able to take their financial wellness goals into their own hands like never before.
Consumers no longer have to settle for the service and product offerings of primarily the major banks in the country and will incentivize market competition between banks and FinTech providers for their own benefit.
However, the accreditation process for third party data recipients can be slow, and the full consumer benefit of open banking will take a few years to be fully seen. Consumers are still encouraged to view their open banking options, as products and services will become more available and refined over time.
Should My Organisation Become Accredited?
Organisations looking to participate in Open Banking must be accredited data recipients. Once accredited, you’ll be able to receive data from data holders like Australia’s four major banks, or smaller banks and institutions as they become open banking ready.
As an accredited data recipient, you can offer your financial solution directly to consumers as a standalone service, or partner with a major bank or other institution to combine your collective data and expertise to create even better products and services for consumers over time.
Moving Towards Open Banking
The benefits the CDR and open banking will have on financial service providers will be a slow burn to comprehend its full impact on the banking sector. Consumers will likely start sharing their data more and more as additional data types become available for sharing, and more third party data recipients become accredited.
Envestnet | Yodlee is a FinTech company which specializes in data aggregation and account verification tools. We are dedicated to helping Australian consumers and businesses make the move toward Open Banking. To learn more, read our whitepaper, “The Open Banking Opportunity”.