On Wednesday last week, 10 financial services companies gathered in a room in Melbourne for a meeting with Australia’s big four banks. They, along with the national competition regulator, discussed how they could share customers’ financial data with each other to improve products and services, and stimulate competition and innovation in the sector.
A day earlier the companies had received a phone call from the ACCC informing them they had been selected to take part in a pilot program for Australia’s Open Banking regime, the first test of the new Consumer Data Right.
The cohort, which ranges from a three-month-old fintech to a 36-year-old multinational software vendor, will be working with Australia’s biggest banks to begin testing the sharing and integration of financial data in the lead up to Open Banking’s official launch in February.
Open Banking is a government and regulator-led scheme which mandates banks share consumer data in a machine-readable way when the customers request it. The goal is to reduce the friction of changing financial service providers and to spur innovation.
Which-50 understands the data recipients will work with the big banks to test the new Open Banking APIs over the coming months. The ACCC will then verify the integrations.
The government’s plan is to use open banking, which has been in the works for several years, as a test case for similar data portability schemes in the energy and telecommunications sector, all falling under the Consumer Data Right banner.
However, Australia’s rollout has already faced several setbacks, ranging from a delay in the enabling legislation to accusations of banks dragging their feet on a scheme which may threaten their market dominance.
Which-50 spoke to eight of the 10 companies that will be on the receiving end of the big bank’s data in the new pilot. The participants said Open Banking would allow them to deliver improved products and services, automate several time-intensive tasks, and reduce the barriers to switching providers.
Ross Sharrott, founder, CTO, and Executive Director for MoneyTree Australia exemplified a common theme among the newly announced data recipients – Open Banking won’t change what the fintech company does, but it will accelerate the pace of innovation.
“Open Banking in Australia won’t necessarily change the core of what we do for other companies, but we do anticipate that having accreditation to access CDR data will allow us and our enterprise clients to move faster and to respond to customer demands in a much more efficient way,” Sharrott told Which-50.
Customers will be the ultimate winners in an open banking world where data is more portable and valuable to consumers, the participants say.
“At the moment we don’t have access to APIs in the Australian market in banking,” said Steve Kemp, head of financial institutions partnerships APAC at Intuit, the global software giant responsible for Quickbooks.
“So this will be the first time that banks in Australia have exposed that data in an API type environment, where we are moving away from other forms of data access that we currently utilise with the banks in Australia.”
Kemp, whose company was a pioneer participant in the UK Open Banking system, says the newly freed data won’t necessarily produce new “core products” like Intuit’s flagship Quickbooks, but will lead to time savings for end users.
Currently, around 70 per cent of transactions on the Intuit software are auto reconciled through bank feeds. But with data becoming available via APIs, Kemp says this rate can rise to 100 per cent, saving accountants between four and six hours per week.
“I think that is a key benefit for us that is not necessarily achievable at this point in time, the way the data is delivered from the bank.”
Kemp told Which-50 Intuit will leverage its global experts on Open Banking in Australia for the pilot phase and establishing a dedicated local team to focus on the Consumer Data Right for the next several years. He says Intuit views Australia’s Consumer Data Right as a major “junction in our future” of its growth in the local market.
Of last week’s meeting with Incumbents, Kemps says he was pleased to see stakeholders on the same page about what is expected from each of them and looks forward to collaborating – a necessity if the “pressing timeframe” is to be met.
“We have very clear expectations from the ACCC and the government. We have the majority of the clarity we all need to actually implement what we need to do,” Kemp said.
“It’s been clearly agreed that we will be working closely and collaborating as a group to make sure as we progress we’re learning from each other.
“And as we find defects and there’s challenges with technology – which we have to assume nothing will be perfectly smooth – that we actually agreed as a group, we will be collaborating to get to February, and without that collaboration we won’t be able to move seamlessly at speed.”
Brian Parker, Chief Information Officer at neobank 86 400, told Which-50 the bank was built with open banking principles firmly in mind.
Having secured its banking licence in July, the challenger 86 400 recently launched saving and transaction accounts. The app features a dashboard which consolidates customers’ financial data in one place, giving users a taste of what’s possible as part of open banking.
Currently 86 400 customers can connect all their accounts (from over 150 financial institutions) into one place, giving them full visibility of their finance. With access to this data the app can serve up information about spending, saving and bills.
To achieve this feature 86 400 built an interim solution using an established account aggregation partner to provide customers access to some of their data held by their other banks in a secure way, Parker said.
“This method of account aggregation is the first important step and a glimpse of the benefits that CDR will provide all Australians,” Parker said.
As a data recipient 86 400 will begin the work to migrate customer accounts accessed via our interim solution to CDR.
“As a bank we needed to take the regulators — APRA and ASIC — on the journey to ensure they understood the security and privacy controls we had in place to support this interim solution and have developed a multi-year transition plan to take advantage of all that CDR has to offer when all banks are participating and more data is able to be delivered to customers in a timely manner,” Parker said.
“Through opening banking, we’ll be able to provide access to payees in your existing bank account and access to scheduled payments to make it easier to switch to a better provider of services.”
Unlike the neobanks, Wildcard Money has a transaction and savings product in the market by partnering with a financial institution, Mastercard issuer EML Payments, rather than getting a banking licence.
Nathan Tesler, Founder of Wildcard Money, says the personal finance startup is on track to issue 20,000 accounts by the end of the year. He told Which-50 Open Banking would make it easier for customers to switch banks.
“We think we can build a 30-second bank account switching service based on this technology,” Tesler told Which-50.
“It’s really difficult to change providers for your transaction account. That friction means consumers often don’t switch providers, even if the new product is better.”
Wildcard says it will use the Open Banking scheme to allow a customer to instantly give it all the data needed to verify their identity and set up their transaction and savings account, including pre-populating all their scheduled payments and payees.
There are longer term changes coming too, according to Lisa Schutz, the managing director of Verifier, a RegTech company which quickly and independently verifies income for customers applying for loans or credit.
“Open Banking is a bit of a misnomer, in our view, because access to bank data is not just about banking,” Schutz said.
“Banking data is helpful for many sectors. Within financial services, we see a real opportunity for super funds to become increasingly relevant to their customers by better understanding the rest of their financial lives and thereby deliver them better overall financial outcomes.”
Gareth Gumbley, CEO of Frollo, said the benefits of open banking could extend to your utilities, telco, super, mortgage, and savings.
Frollo is a free personal finance and budget management app, which helps customers stick to their savings goals and find ways to save money. For example, its bill comparison tool allows for consumers to compare and switch utility providers by just uploading a bill.
Gumbley told Which-50, “Forward-thinking financial services companies are using our API’s to make these same features available to their customers.”
“In a true 100 per cent open data world, digital financial tools can do the work for us to analyse the data around a current product, shop the market, and show the value of making the change,” Gumbley told Which-50.
Powered by APIs, the machines could take care of those processes on behalf of the consumer.
“When we get to the point of automatic or even autonomous switching, then the full impact of open banking will be realised.”
Unlocking financial data for predictive analytics
Patrick Connolly is the CEO of ProcureBuild, which provides software for property companies to analyses the risk profile of construction businesses and projects.
ProcureBuild applies AI and machine learning to the data inside a company to determine the financial strength and viability of a contractor, which is a leading indicator into the success or failure of a construction project.
“Open banking will allow us to provide our customers with powerful predictions and insights into the health of their projects and portfolio companies using real time financial data,” Connolly told Which-50.
Currently, during a tender process contractors are uploading their financial information to ProcureBuild’s system manually, which can delay the process or be manipulated. Open Banking will streamline that process.
ProcureBuild’s initial Open Banking use case will require basic bank account data, which will be fed into provide us with access to the company bank account balances which will be used when assessing the risk of a construction business taking on a new project.
“As a whole, open banking will provide consumers with the power to choose who has access to their data, what data they have access to and how they intend to use it. This will become invaluable not just for the financial sector, but for all sectors that rely on financial metrics to make decisions,” Connolly said.
A more accurate financial picture, delivered much more quickly, is also the early use case for fellow participant, Quicka. The fintech allows small and micro businesses to manage cash flow by essentially taking responsibility for invoice collection for a fee via its digital platform.
“With our business, we’re extending micro loans, if you will, to thousands of small businesses around Australia,” Quicka CEO and cofounder Nathan Carroll told Which-50.
“And so one of the crux of our model is being able to provide affordable credit but also being able to make sure that we can really justify and understand the risk metrics.”
Without open data, building a strong credit model would take years, Carroll says. But he expects an effective Open Banking regime to bring the time down to months.
“We can offer a lot more affordable products and actually compete against the larger players in the market … who have already built up these really strong profiles over time?
“It allows smaller businesses like us that are starting out to really compete on that same level and have access to that which ultimately benefits the end user.”
Will Open Banking Drive Competition?
When Open Banking was first outlined by then Treasure Scott Morrison in 2017 it was pitched as a way of driving competition in an Australian banking sector typically starved of it. And while it remains to be seen how effective a mechanism the scheme will be in that regard, more competition is still the expectation more than two years later.
Several neobanks gained licenses in 2019, most pitching innovative new features and digital experience at Australia’s notoriously sticky banking customers. The challenger banks emegred independent of Open Banking but the new flows of data will help with their selling points.
Parker, the CIO of one of the newly minted banks, 86400, says open banking hasn’t been a priority for Australia’s largest banks because it is fundamentally about ceding control of information. Subsequently, competition and innovation have suffered.
But eventually, as banks are forced to migrate into an Open Banking ecosystem competition will improve, he says.
“It will get there eventually but it’s not something that’s going to happen immediately.”
“Once developed the Open Banking ecosystem will be hugely beneficial in addressing competitive imbalances in Australia’s banking sector. Giving consumers control of the data banks and financial institutions hold on them will make it much easier to find the best product or service, and allow consumers to switch to better offerings far more easily.
Parker adds 86400 is hoping Open Banking will lead to a “new wave of thinking in the banking sector” and “an urgency for the development of better products and services that work for the consumer first”.
Fellow pilot participants told Which-50 they too expect more competition eventually but also think it could be years away.
“People constantly overestimate the changes in the short term while underestimating the long term impact,” Frollo’s Gumbley says. “The innovation being driven even now is quite impressive but incumbents still have the advantage when it comes to customer apathy or inertia.
“People are busy, so any friction the banks have when it comes to shopping or changing accounts still provides a moat. That said, we like to build bridges.”
Sharrott, the founder of Moneytree said the industry will become much more competitive when every relevant, responsible and capable industry participant gains access to CDR data.
“At that stage, the age of gatekeepers in banking will be over. How long will it take us to get there? That’s very hard to predict,” he said.
The first few years of the regime will an era of building more connectivity.
“Data pipelines will be built in every direction not with predetermined designs, but as a result of customers requests and interactions with their financial services providers.”
“It may take a while for the changes to gain traction in the overall economy, however, we will start to see these benefits as organisations transform themselves around consumer consent and focus on delivering value to the consumer. Australia’s ambitious CDR, which goes beyond banking, should expand these benefits across the entire economy in time.”
Verifier’s Schutz says barriers to entry are lowered with Open Banking but many will remain.
“Cost of capital issues and the regulatory overhead are still part of the competitive reality. I suspect that ultimately, Open Banking will support disruption of the retail bank as we know it, since when you think about it, most money matters relate to a bigger life event.”
But for now, the potential competitors will be setting aside their rivalries, with the data recipients and the banks are now on a tight timeline, to build test and implement the CDR protocol.