Australia will start implementing Open Banking this coming 1 July 2019. The Australian Government conducted a review into open banking last May 2017, and the final report was released last year. The first phase of this program will start with major banks making available credit and debit card, deposit and transaction account data for pilot testing. By 2020, major banks are required to have all product data available under the open banking framework. All other banks are required to follow suit, with a 12-month delay in timeframe.
The Australian Competition and Consumer Commission (ACCC), with supervision from the Australian privacy commissioner, will oversee the regime of open banking in the country. The Commission sees open banking as a necessity for consumers to thrive in a competitive global economy, which is becoming all the more driven by digital data. The federal government is also planning to apply CDR to other sectors in the future.
What is Open Banking?
Open Banking is a system that provides users with data from a network of financial institutions. The standard behind this defines how financial data should be created, accessed and shared. By relying on networks instead of centralizing all data in one place, open banking helps consumers securely share their financial data with other banks and lenders.
The proposed Consumer Data Right (CDR) system will allow individuals and business owners the right to access data about or related to them that is held by a designated entity. They can also transfer such data to accredited third parties.
Benefits of Open Banking to Small Business Owners
Business owners will be able to access their financial data and personal information from financial institutions and make it available to other companies. The barriers in accessing bank data and other information will be eradicated, and thus lessen the difficulties and costs for people to get new financial products and services. Switching to better and more competitive financial options would become much easier.
With open banking, business owners can have their data sent to financial institutions and other organisations. You are given control as to where data will be sent. For example, if you want to get a business loan, you could have your business banking transaction data sent to a lender that you want to borrow from. You can also send it to other potential lenders and see which loan product would best suit your needs.
Open Banking will also allow small businesses to seek new options when it comes to banking and lending. If you have a small business and want to switch banks, you can finally take your data to the new bank. You can still use your transaction history from your previous bank to secure financial products such as business loans.
This system of sharing consumer data will have a big impact on many levels. By agreeing to share consumer data, you’re able to find the best options when looking for financial products. This can include credit cards, home loans, and business loans. You will be able to compare product offerings, easily transfer funds, and experience better banking with the open bank data framework in place.
With Open Banking, you can also get a more accurate picture of your own finances before taking out a loan. An open banking app can help you calculate what you can afford based on all of the information in your accounts.
Benefits of Open Banking to Lenders
Open Banking will increase competition and pave way to more innovation in the financial industry. Companies will be moved to attract more customers by offering better financial products and services. As consumers and business owners are given more flexibility and accessibility to data, this will be a catalyst for financial institutions to be more competitive if they want to keep their customers.
Financial apps can be developed to gather spending data from various financial organisations, payment platforms, and loyalty programs. As a result, it can provide excellent financial management and investment advice. Consumers’ transaction data can be used to identify the best financial products and services, such as savings accounts that have better interest rates.
Through the use of networked accounts, lenders can get a more accurate picture of a business owner’s financial situation and risk level. In turn, lenders can offer more appropriate loan terms for their borrowers.
The system is also a move towards transparency – for banks to provide the best customer experience amidst the increase in competition. Making consumer and business data more accessible than ever will give people the capability to share this data with newer and smaller financial companies. It will also make the economy more robust and no longer centralized on the few major banks. This results to lowering costs, developing better technologies, and improving customer service.
Government Timeline for Open Banking in Australia
May 2017: The Australian Government announced that it would conduct the Farrell Review into Open Banking in the country.
February 2018: The final report is released, which includes recommendations concerning the regulatory framework, security, types of data, and implementation.
May 2018: The Australian Government agreed to the recommendations of the report and mandated a timeframe for rolling out an open data system.
1 July 2019: The big four banks of the country will make credit card, debit card, deposit and transaction account data available for pilot testing under the proposed framework.
1 February 2020: The big four banks will be required to make mortgage data available as included in the open banking framework.
1 July 2020: Major banks are to follow this deadline of having all product data available under the open banking framework, as indicated in the Farrell Review.
In a Nutshell
Open Banking will spur incredible innovation in the fintech industry of Australia. It will also affect everyone as the government will apply the system to all sectors in the future. Open Banking allows a more flexible access to financial data for consumers and business owners. This system will give morpower to the people in terms of getting better financial options they wouldn’t have known before. It will also catalyse developments within the financial industry by providing better products and services to consumers.
Do you look forward to seeing Australian finance becoming more competitive and innovative in the next two years? Stay tuned on our feed and subscribe to our newsletter for more future updates.