Many FinTechs and ADIs view "open banking" as a threat, or merely an onerous compliance exercise. But Australia's new Consumer Data Right (CDR) regime presents local FinTechs and ADIs with a valuable opportunity to drive innovation and more closely engage with customers.
Introduced in July 2020, CDR grants Australian consumers greater access to and control over their own financial data. It began with opening up access to consumer data relating to credit and debit cards, deposit accounts, and transaction accounts – extending to include mortgage and personal loan data in November.
The aim of CDR is to improve consumers’ ability to compare and switch between products and services and encourage competition between service providers – leading not only to better prices, but also more innovative products and services.
What are some of the consumer benefits?
For consumers, one key benefit of CDR is "multi-banking", getting a full cross-vendor view of their financial situation in a single app. They select the banks they want to connect, consent to share their data, and complete their banks' authentication processes so the app can fetch their banking data.
Other benefits include easier access to foreign currencies on demand, faster decisions on loans and mortgages, and easier management of personal finances – such as access to AI personal financial assistants to receive a more accurate credit score and automatic suggestions about saving money on bills and insurance.
CDR enables banks and FinTechs to innovate
For banks, obvious benefits include improved customer experience and better risk management through data analytics. Looking at the big picture, open banking makes it easier for banks to innovate through forming partnerships and joining API ecosystems.
This creates the potential to quickly bring new product ideas to market without the constraint of dependency on bank systems, balance sheet,s or servicing capabilities. It can incorporate loans, insurance products, or money transmission products that lie outside your risk appetite. Options include exporting data to personal finance managers and selling services to other parties.
For example, the Bank of Ireland has partnered with the Post Office in the UK to offer more than 2.4 million customers access to everything from savings and loans to foreign exchange, credit cards, and mortgages at more than 11,000 Post Office branches. From the customer perspective, they are banking with the Post Office, but in reality, the Bank of Ireland is the provider, using third-party partnerships to grow its balance sheet outside its home market.
Closer to home, the Commonwealth Bank of Australia has grown its mortgage business by aggressively forward integrating into real estate search.
The opportunities aren't just at the big end of town. CDR makes it easier for smaller banks and ADIs to engage with FinTechs in a way that allows them to keep pace with innovation.
For FinTechs and other third parties, the ability to take a holistic view of a customer's finances allows them to incorporate value-added services such as tailor-made financial services and personal finance management. Possibilities include financial data reports and analyses, tax accounting and payroll management, early settlement discount payment management, credit risk analytics, and robo advisory services.
While implementing CDR presents challenges, Gen Advisory believes it can offer a much-needed boost to the Australian economy and drive long-term innovation. To discuss how to begin your successful open banking journey, contact us.