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Australia leads the way in open banking design

by Alexandra Cain | 18 Mar 2019
Experts say that although we may not have been first in market, the design of Australia’s open banking regime is leading the world.

The impetus behind open banking is greater competition in financial services. It requires banks to share customer data at their request. The new regime starts in February next year, assuming the bill moves successfully through parliament. In Australia open banking is a precursor to giving consumers in other industries such as energy and telcos access to their own data to create an open data economy.

The open banking movement is sweeping the globe in different forms. In some markets governments are leading the way, while in others regulators are taking a back seat. Different models from are also emerging in different countries. 

“Internationally, open banking has had a very strong industry focus, whereas in Australia, it’s being implemented under the government’s Consumer Data Right laws,” says Paul Moss, general manager, technology, operations and product from Tasmanian bank MyState. 

Open banking is already live in the UK and Japan. It’s slated to kick off here in February 2020, with pilots and other work going on at banks behind the scenes to ensure they are ready to share customer data by that date.  

Should there be a change of government in Australia, it’s assumed the Australian Labor Party would want to review open banking. It’s understood there is bipartisan support for a more competitive financial services sector, which open banking would help support.

It is hoped open banking will spur a new era of innovation in financial services. As an example, Moss uses a budgeting tool that analyses bank transaction data and makes a suggestion consumers could meet their savings goal quicker by switching mobile phone plans, even giving them the ability to switch to the new plan.

Paul Wiebusch, professional services firm Deloitte Australia’s open data partner, 
explains one of the fundamental differences between the way different jurisdictions are approaching this is whether they are implementing data sharing, known as read access, or whether they are focused on payment initiation or right access. Australia is in the former category.

“To build consumer confidence you want to start by sharing data, before you start allowing third parties to initiate a payment on your behalf,” he explains.

Deposits are an example. Under open banking, it may be possible for providers to automatically switch investors from low-paying term deposits into higher paying ones each day.  

Different nations also have different scopes. In the UK, only nine banks were initially involved, whereas in Australia open banking is open to all financial institutions and other parties. In the US, institutions will self-select to be part of open banking.

“There are also questions about which data is included. Is it retail, or retail plus small business, or all accounts? So, the way open banking manifests in one country is different to the way it appears in others,” says Wiebusch. Open banking is already live in the UK and Japan.

Professional services firm EY publishes an open banking index. It ranked Australia fourth in terms of regulatory support for open banking, sixth in innovation around open banking and ninth on sharing transaction data with fintechs. It ranked UK as the top country for adoption, but Wiebusch says what’s most important is how sustainable each country’s model is.

“Ultimately it has to be an economy-wide solution. We have put a lot of thought into design considerations around our model and others are looking at our approach, which is more comprehensive than other countries, many of which are more limited in scope and enjoy less secure data transfer mechanisms,” he says   
Moneytree is one fintech that’s already building open banking-friendly technology here and in Japan. The app links savings, credit card, superannuation and other accounts in one place. Founder Ross Sharrott says the business is already talking to institutions here and in Japan about how they can thrive in an open banking world.

“In Australia we are coming up with a set of standards everyone has to meet, whereas in Japan it’s more about making industry agreements. Institutions are developing their APIs and Moneytree is connecting with them. We’re working with them not just to bring data into our app for individuals, but also to improve their own apps and products using open banking data.”

API stands for Application Program Interface – they are platforms that marry data and software and enable the manipulation of the former.

It’s early days for open banking around the world. No matter what approach different jurisdictions take, the advent of this important initiative is likely to underpin financial services for decades to come.


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