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Open Banking is here. It’s not scary, and it could save you money.
I asked my 72-year-old Dad what he thought Open Banking was. With a daughter deep in the fintech industry, you would hope he’d know a thing or two about dollars and cents.
Despite his enthusiasm for the topic, he thought Open Banking was “more banks opening back up.” Not quite. He hit closer to the mark when he explained that ‘banks will become more transparent and teach people how to manage their money better when saving, spending and making investment decisions.’ Sound familiar? Well, my Dad is not far from the truth.
With over 5,000 fintechs in Australia, and more opening by the day, he may get the schooling he’s after along with better access to financial services, and the democratisation of tools that can provide financial literacy. All while enriching day to day financial transactions.
Open Banking is not just fancy wrapping paper for Application Programming Interfaces (APIs). It’s changing the way financial institutions support and deliver solutions to their customers.
Banks and fintechs are building offerings that put customers in control of their financial data and solve real day-to-day problems. Open Banking enables this by providing customers with a seamless experience for accessing, moving, and using their money in a way that fits their lifestyle.
For financial institutions, it also means gaining access to deeper insights about customers, which can help banks enrich the customer experience by delivering better value.
At the end of the day, don’t we like to think we are in control of our hard-earned dosh?
Levelling the playing field
Open Banking in Australian means that the big four banks must share their product, customer, account and transaction data with accredited financial institutions.
So far, the lack of participating data recipients comes down to a complex accreditation process and CDR framework which is being reviewed and simplified by the Australian Competition and Consumer Commission (ACCC).
The question is, however, what will drive financial institutions to become accredited, even if the CDR framework becomes more accessible?
Accreditation comes with great responsibility. A business must prove that it’s security infrastructure is capable of protecting consumer data, with the aim of one day having a secure network of financial institutions exchanging customer information.
Beyond the finance sector, Open Banking will broadly benefit different industries like telecommunications, insurance or energy; building on the original intent of the CDR scheme.
As ACCC commissioner Sarah Court explains, “As more businesses become accredited over time, consumers will benefit from an increasing number of innovative services and a vastly improved experience that puts them in control of their data.”
Open Banking and the bedrock of trust
Consumers have long had a strictly monogamous relationship with their chosen financial institution. A survey by Finder reveals that 40 per cent of Australians, or over 10 million people, are still with their childhood bank.
However, a more recent study by Deloitte indicates that as a direct response to Open Banking, one in five people will look to change their financial institution within the next year.
For both businesses and consumers to benefit from Open Banking, they need to see mutual interest. The onus here falls on government and organisations to educate the masses and raise public awareness.
Trust through branding and messaging is essential. Companies must understand that CDR is an intimate exchange of data within its security infrastructure, with an end-to-end view of how that data is secured and used within each function.
Moreover, taking this holistic approach enables a clearer snapshot of your customer, with insights into how you can best market new offerings, communicate, and eventually build customised products to best serve their evolving needs.
Unlocking innovation potential
Locally, we’re already seeing the rise of dedicated Open Banking fintechs, presenting an incredible opportunity for entrepreneurs to build businesses aligned to accreditation models.
Third-party fintech providers have the potential to support small and medium-sized businesses in accessing the CDR functionality at scale. The alternative is waiting for large enterprises to build accredited platforms – a process that could take years.
Open Banking will also work in conjunction with the New Payments Platform (NPP), a near-real-time payments and settlements system that serves as the mediator between financial institutions.
Katrina Stuart, the Head of Engagement at NPP, explains that the system aims to “provide the right capabilities and make that available at the core so different organisations can build products and service offerings outside the platform, and use it unilaterally to foster greater competition and innovation.”
Visibility over consumer data enables a more holistic view of your customers, as well as how they interact with services and products from other providers.
The potential for innovation in this respect is endless; unlocking data-driven insights to create more frictionless customer experiences while empowering consumers to demand better products and services.
So, as I watch my Dad drive off to do his monthly cash collection for his friends’ lotto pool, I wonder; how will I keep him entertained in the years to come, and what new ways will he find to un-automate things.