Open banking has arrived, but without consumer trust, it’s going nowhere
Last editedMar 20212 min read
In July 2020, Australia saw the first iteration of open banking in the form of the Consumer Data Right (CDR), allowing customers of the big four banks to securely share their financial data with accredited third-party fintechs and other financial institutions.
The CDR scheme is a significant milestone in Australia’s banking and finance sector, giving consumers and eventually businesses, greater control and transparency over their financial data and how it is used.
The key benefits of open banking, according to the Australian Banking Association, will enable and empower consumers to:
Access better-suited financial products and services
Switch between banks and financial institutions more easily
Gain a holistic and clear understanding of saving, spending and investment decisions.
With over 5,000 active fintechs in Australia and more opening by the day, the transformative potential of open banking is yet to be realised across key industries. So what comes next?
What is holding Australia back?
As more organisations take part in open banking, consumers will realise its value at scale.
However, to guarantee the safe sharing of financial data, organisations must become an accredited data recipient through the Australian Competition and Consumer Commission (ACCC).
So far only a handful of organisations such as neobank 86,400 and Regional Australia Bank have gained accreditation. The lack of participating data recipients comes down to a complex accreditation process and CDR framework, which is currently being reviewed and simplified by the ACCC.
Beyond improving an overly-complex accreditation process, what will drive financial institutions to participate, even if the CDR framework becomes more accessible?
Accreditation comes with great responsibility. An organisation must prove that its security infrastructure is capable of safely accepting and protecting consumer data, with the aim to one day have a secure network of financial institutions exchanging customer information.
A lack of adoption in the finance sector today could see different industries, like telecommunications, insurance or energy fail to implement successful CDR initiatives in future; this is especially true if next phases of open banking push forward ahead of the first initiative gaining momentum.
Financial data and the bedrock of trust
Australians have a long and complex relationship with banking institutions.
The 2017 Royal Commission brought to light misconduct in superannuation, banking and financial services, with over 10,000 public submissions of distrust highlighting corporate greed within each sector.
Understandably, many people hold a negative perception of financial institutions as a result of the inquiry.
For organisations wanting to participate in open banking, this poses a new set of challenges. Although the CDR scheme is designed to shift the balance of power from financial institutions to consumers and eventually, other businesses, Australians need assurance that they are in control of their personal data.
Trust through branding and messaging is essential here. Companies must understand that CDR is an intimate exchange of data within its security infrastructure, with an end-to-end view of how it is secured and used within each function across their business.
The benefit for financial institutions is a more precise snapshot of their customers, with insights into how they can best market new offerings, communicate, and eventually build customised products to best serve the evolving needs of consumers and companies alike.
A 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. The desire for a more transparent and open exchange of financial data is there; however for both businesses and consumers to benefit, they need to see mutual interest and adoption.
The responsibility now falls on the government and organisations to educate the masses and raise public awareness - open banking’s potential is too great to be overlooked.