Open Banking in Australia is a new regime that from 01 July 2020 gives consumers more control over their financial data than ever before. The European Union and the United States have rolled out similar Open Banking initiatives that have transformed the quality and quantity of consumer data provided by banks and other financial institutions.
What Is Open Banking and Why Does It Matter?
Open Banking is all about the open exchange of financial data between consumers, their primary financial institution, and third party organisations like FinTech companies who use data to provide simpler and more relevant banking products and services.
A fundamental part of Open Banking is that data sharing is only allowed with the consent of consumers on what data they wish to share, such as basic contact information, account balances, product information or transaction details, and with what organisations they choose.
Under Australia's Open Banking regime, the Consumer Data Right (CDR), consumers may opt-in to start sharing their data with select organisations who have been accredited by the Australian Competition and Consumer Commission (ACCC). At any time, consumers can withdrawal their consent for data sharing and have their data deleted or deidentified by their third party organisation.
Why Is Open Banking Important?
With the passage of Open Banking, both competition and collaboration between Australia’s big four banks and rising FinTech companies are likely to take place. FinTech companies have the expertise and software that can seamlessly integrate with existing banking systems known as application programming interfaces (APIs).
Open banking APIs empower FinTech companies to operate on their own as a stand alone financial services provider, or partner with existing banks to combine their collective banking data, and use it to create and refine even better financial products and services in the future.
From 01 July 2020, customers of the big four can share their financial data with accredited organisations for deposit and transaction accounts, as well as credit and debit cards. This means that consumers can utilise their CDR data to receive intuitive services like helpful self budgeting tools that track all of a user’s expenses in a single dashboard, have an easier time switching service providers, or even get more personalised and relevant product recommendations based on their unique financial picture.
From 01 November 2020, the benefits of open banking for consumers in Australia will expand further, with the option to share their data from home loans, joint accounts, personal loans, and offset accounts with accredited organisations.
Come the end of 2020, Australians will have the option to stick with their current banks and utilise their services, or look elsewhere for better products and services driven by the innovation of FinTech service providers.
What Does Open Banking Mean for Banks?
As reported by ZDnet, 95% of Australia’s customer deposits market share is held by one of the big four banks. This makes open banking in Australia a unique test case to see what customers will start looking for and come to expect from banks moving forward.
The big four banks in Australia: ANZ, NAB, Westpac, and Commonwealth Bank were mandated to make banking data available to third party providers by July 2020.
Moving forward, the big banks can leverage their own in-house technologies and developer expertise to compete with the FinTech market in providing more personalised products and services, or collaborate with FinTech providers and strengthen their already dominant hold on the Australian consumer market.
As Australian Open Banking continues to expand data availability, banking data providers, and the accreditation of third party organisations to participate in open banking, the transformation of the Australian banking industry and FinTech remains to be fully seen.
Is There a Version of PSD2 for Australia?
The Payment Services Directive (PSD2) is the European regulation for electronic payment services put in place in the EU in 2016. The regulation mandates security standards and protocols for banks and third party financial service providers to follow so they can participate in open banking. PSD2 has long been a work in progress as security concerns over open banking APIs have been addressed, making the exchange of banking data via APIs as secure as possible.
Australia’s version of the PSD2 is the Consumer Data Right (CDR) with its implementation being overseen by the ACCC. The CDR gives Australian customers of the big four banks and other smaller banks the opportunity to share their data via bank data APIs that meet the strict and extensive tests of the ACCC’s accreditation process.
The ACCC encourages customers to check current providers they can share their data with as more and more providers receive accreditation. Only after receiving accreditation are third party providers able to start sharing data via their APIs.
Open Banking in Australia Timeline
In May 2018, the Australian government agreed to implement the CDR and announced a phased approach for its implementation. Each phase of the implementation introduces additional data sharing capabilities customers of the major banks can start using with accredited third party providers. Smaller Australian banks and financial institutions follow a different implementation timeline, but will eventually provide the same open banking benefits to customers.
From 01 July 2020, deposit and transaction accounts, as well as credit and debit cards are open banking ready for the big four.
From 01 November 2020, home loans, joint accounts, personal loans, and offset accounts are opening banking ready for the big four.
From 01 February 2021, business loans, investment loans, overdrafts, case management accounts, retirement savings, foreign currency accounts, and more are open banking ready for the big four.
For a full rollout, visit the Australia Banking Association’s Open Banking Timeline.
To learn more, read What the Consumer Data Right Means for Finance
Envestnet | Yodlee and Open Banking in Australia
The CDR is now the law of the land, and Open Banking is underway in Australia. Envestnet | Yodlee is helping financial service providers leverage Open Banking and unlock new financial wellness opportunities. The CDR has the potential to transform Australia’s key infrastructures, starting with financial services, by providing organisation and protection for consumer data sharing. Done right, this will foster responsible innovation, increase competition, and deliver hyper-personalised data-driven services to consumers at the right time and in the right way.
Envestnet | Yodlee’s core value propositions to our clients are enhanced by the CDR and Open Banking.
Powerful Developer Tools
Envestnet | Yodlee knows that highly impactful customer-centric services begin with highly effective developer experiences. That is why we offer an industry-leading combination of powerful developer tools and the most comprehensive and accurate financial data available on a massive scale across banking and wealth management.
CDR provides access to raw transaction and account data, whilst this data is normalised against the Australian Open Banking Standard API, the API is also versioned so there is no guarantee that all data feeds will be consistent from providers. Envestnet | Yodlee is able to provide consistent data for over 21,000 global data sources.
Simplified Customer Experience
Consumers typically have a variety of account providers with multiple accounts at each provider. As Open Banking only covers certain providers and account types, the resulting complex customer experience could be so unwieldy as to reduce adoption of your services.
Envestnet | Yodlee Financial Wellness Solutions complement Open Banking, making it easy to provide the actionable advice and personalised financial coaching consumers need to move forward. Comprised of the leading Envestnet | Yodlee Financial Data Platform and AI-powered APIs or FinApp series, the solution enables you to deliver a virtual financial wellness assistant.
For more information on how we can help you with Open Banking in Australia, please feel free to contact our Australia-based team.