Open banking—the next ‘big thing’ in banking

The demand for easier access and better control of our money isn’t new. In 2015, Facebook introduced the Facebook Payment functionality through its messenger platform. Meanwhile, PayPal subsidiary Venmo simplified paying and requesting money from your friends and family. The Comprehensive Credit Reporting scheme currently being implemented will give a better indication of your credit history and borrowing power.

Even more recent, however, is the introduction of open banking in Australia and a complete shift in how we access and control our financial data.

Already gaining traction in the United Kingdom, European Union, the United States and Singapore and first announced in Australia in December 2017, open banking is set to revolutionise the way we manage our finances.

What is open banking?

Essentially, open banking is the free flow of financial data from one organisation to another, with less red tape. The data is controlled entirely by you, the consumer, which means you will be able to decide which companies, third party apps and financial institutions have access to your information and how it gets used.

All authorised deposit-taking institutions (ADIs) will be included in the open banking rollout, while other companies, like app developers and Fintechs, will need to be accredited and adhere to security and privacy standards.

While we don’t yet know the full range of possibilities open banking will deliver, some early examples of how you can benefit from open banking could include:

• More accessible and comprehensive data sharing with budgeting apps to help you keep on top of your spending and savings
• Easier and more complete data sharing with accountants and financial planners to improve the quality of advice and assist in tax preparation
• Portability of your transaction history when opening an account at a different bank, so that it is visible in your new account
• Better oversight of your financial data to enable to you make better informed financial decisions and find products and services that are right for you
• Improved ability for banks and other financial institutions to create new and more tailored products and services based on available data.

Privacy and security

The open banking roll-out will begin with the major banks being required to make credit and debit card, and deposit and transaction account data available to you when you request it, commencing from 1 July 2019. Mortgage and personal loan data will follow in 2020, and by 2021, data will be available for all banking products from all banks.

The phased approach will give all relevant organisations time to put policies and procedures in place to ensure that that consumer data is handled correctly and in line with strict security standards. The government will legislate the Consumer Data Right, which will afford consumers the ability to choose how and with who their data is shared. Only the organisations you authorise to access your data will be able to, and they can only use it for the purpose that you specify.

Do we actually want it?

The jury is still out on this one. A 2016 survey commissioned by the Customer Owned Banking Association (COBA) found that only 42 per cent of Australians are interested in the access that open banking will provide. A quarter of people surveyed said that they were opposed to the idea. The survey also found that younger people are more receptive to the idea of open banking.

It’s little wonder that so many people are sceptical. Data privacy has been in the news a lot recently with Facebook and Equifax both being the subject of media scrutiny over leaks and data breaches.

COBA has spoken out in favour of open banking because of the increased access and improved competition among established financial institutions that it will offer to consumers. COBA says that the adoption of open banking by customer-owned banks is “a natural fit” because of the industry’s customer-first approach to developing and delivering financial products and services.