Open banking a threat to big four banks
Open banking, one of the most seismic changes to hit the financial services industry, giving customers more power - and better enabling them to switch providers - has been delayed.
The competition watchdog has pushed back the introduction of the system, which essentially gives customers ownership of their transaction data, to allow more time for testing of security and privacy protections. Open banking means that first the Commonwealth Bank, Westpac, ANZ and NAB - and eventually all banks - will have to make credit card, deposit and transaction data available if customers request it, by July. From November, they must add in mortgage data as well.
The system was supposed to be in place for the big four banks by February.
"The Consumer Data Right (CDR) is a complex but fundamental competition and consumer reform and we are committed to delivering it only after we are confident the system is resilient, user friendly and properly tested," ACCC commissioner Sarah Court said in a statement.
"Robust privacy protection and information security are core features of the CDR and stablishing appropriate regulatory settings and IT infrastructure cannot be rushed." The relationship between banks and their customers is generally thought about in terms of money. From next year, it'll become about power.
"This is potentially earth shattering for the financial services industry," said Professor Deborah Healey, a competition law specialist who has researched why so few customers shift banks. "Because these are very important decisions people are making, and I think they will put time and effort into making those changes if, in fact, they see that something better is on offer."
Open banking means that at the touch of a button customers can choose to share their transaction data, including their spending history and direct debits, with a third party. Companies can then analyse that information to offer better deals and incentives to switch.
When the popularity of mobile phones took off in the late 1990s and early 2000s, Australian consumers were stuck. Companies owned the actual phone number and knew customers rarely wanted to wear the hassle of changing it when they switched providers.
But in 2001 portability legislation changed everything, allowing customers to switch providers, keep their details and move on as if nothing had happened. Last year, more than 2.3 million customers, almost 10 per cent of the market, shifted.
The UK introduced open banking almost two years ago. The founder of peak body Open Data Australia, Jamie Leach, said the uses of the technology were still being worked out, but it was already getting customers to think differently.
"The potential for people to move between brands, or the ease for people to be able to have products with multiple brands and still be able to track that through a single app is real and that that's happening right now," she said.
"The old days where people have all their 'eggs in one basket', because it's easier, is not going to be the future."
In the UK, online-only "neo banks", financial tech (fintech) companies and aggregators have embraced the technology, because it enables them to convince rustedon bank customers to examine their accounts and see if they can get a better deal.
"Fintechs are chomping at the bit. It's going to be a bit of a game changer," Ms Leach said excitedly. "What it is, is you being able to determine if you want a third party, if you want an app that's going to make your life easier to navigate or offer you better rights for instance, to access your credit, follow your your banking history.