Banking’s far from a topic that gets people talking around the office water cooler.
But the suite of new reforms, set to be implemented across Australia over the next few years, is worth chatting about, because they represent a giant change to how banks and consumers will do business with each other.
Being phased in from mid-2019 (starting with the four major banks), the overhaul means it will be easier for consumers to switch between banks and hopefully get better deals. Indeed, here’s what the Australian Competition and Consumer Commission says about the reforms to the troubled sector:
“The consumer data right will improve consumers’ ability to compare and switch between products and services. It will also encourage competition between service providers, leading not only to better prices for customers but also more innovative products and services.”
Here are five ways open banking could be a gamechanger for consumers and business.
It could be easier to swap banks
As the Financial Services Royal Commission revealed, some banks have been engaging in questionable conduct for years, including charging customers for services they never received, and in some cases even charging customers after they had died.
Customers may have previously found it tricky to change banks, even if the service they were getting was sub-par.
One of the big hopes for open banking is that it’ll be a lot easier to switch to different banks. That’s because, in part, open banking will give consumers greater access to their financial data, and they may be able to send it to other trusted parties of their choice, when they want.
Open banking will be big for fintechs
At the moment, the big banks have a serious information advantage over other players in the market, such as disruptive fintechs. In short, the big players have info about their customer’s banking activities which is not available to anyone else including the smaller, newer market participants. This gives established organisations an edge.
By contrast, with open banking, the aim is to remove this baked-in advantage so ownership of this customer information shifts from financial institutions to the customers, enabling them to share their transaction and other data with third parties such as fintechs.
A better deal for consumers?
You’re probably gathering open banking is largely focused on sharing data. And as mentioned, one change will be the ability to give third parties access to your financial info.
For consumers, this has the scope to show other providers you’re money smart and financially prudent, which could lead to you getting better offers than you currently do. On the flip side though, if your financial history is poor, you may end up paying more.
A more holistic view of your money
Judging from the United Kingdom’s experience, open banking will also enable customers to have a more accurate view of their financial behaviour, thanks to apps that will be able to access a wealth of more openly-available data.
In the UK, where open banking has been in place for more than a year, there have been apps — such as Yolt and Plum — developed off the back of the changes. These apps can help people with visibility over their expenses and when and where they might want to cut back.
There are likely to be additional advantages that come into play, such as bringing your old transaction history from bank to bank when changing institutions.
More data flying around the internet
There are question marks around whether all this data being made more accessible to customers will help or hinder data protection and privacy. Unfortunately, we think it may mean more scope for electronic crime and data breaches, making it essential that banks, fintechs and other players consider how open banking will impact the management of their cyber security and privacy risks.
As accounting firm Deloitte points out: “The evolution of an open banking model, where customers rather than each financial institution control and share their data, will potentially have a profound effect on financial crime risk management.”
The open banking changes are slated for completion by mid-2021.