Open banking driven by the new Consumer Data Right has helped accelerate innovation in the financial services sector locally during the pandemic according to Tarek Ayoub is the CEO and Co-founder of Beforepay
Yet it is still early days in Australia for open banking, compared to a market like the UK, he says.
Beforepay is an emerging app-based fintech that provides credit to its users prior to their regular payday.
“It’s been three years since the start of Open Banking in the UK, and already more than 2.5 million U.K. consumers and businesses use open-banking enabled products for their finances and payments.”
“In Australia, we’ve only hit the tip of the iceberg when it comes to open banking. Indeed, as more open banking programs roll out as a result of the current environment and the Consumer Data Right (CDR) framework, we’ll see more innovation propel the industry forward to the benefit of the consumers,” he says.
According to Ayoub “Collaboration between incumbents and tech-native fintechs has accelerated so as to develop digital-first offerings for the new online normal brought on by the pandemic.”
He describes the benefit as twofold. It gives Buy Now, Pay Later (BNPL) platforms a competitive edge over less agile incumbents while also giving consumers a more convenient experience and greater insight into their financial well-being.
Ayoub tells Which-50, “The pandemic has left many Australian households with far less to spend on essential goods, let alone unexpected bills or one-time purchases. Those who are looking for flexible payment options and safe sources of credit to manage any pay disruption responsibly will no doubt accelerate the adoption of BNPLs and pay on-demand solutions.”
Open banking offers the opportunity to look into consumers’ financial habits and attitudes without having the pageantry of an invasive and dreaded credit check, he says.
“It also enables a secure avenue through which users can share up-to-date details of their financial condition, such as income, spending habits, regular bills and any existing loans.”
For consumers, this looks like a more modernised payment experience that makes them less reliant on outdated little pieces of plastic. “Credit cards – and the process of applying for credit – is a carryover from a time when businesses weren’t connected to the internet.”
The benefit to digital-first credit solutions
Pay on-demand providers and BNPLs will also gain a more in-depth overview of a customer’s financial situation which in turn, enables them to perform timely and more accurate credit checks and to offer more sophisticated budgeting services, he says.
As an example, Beforepay now works with Assembly Payments enabling it to approve wage instalments in just 60 seconds, compared to the industry average of 48 hours.
“Pay on-demand and BNPL providers, with the customer’s permission, can use APIs to generate an in-depth overview of a customer’s financial health, giving them the ability to make fast, accurate and confident credit decisions.”
He says open banking will enable providers to distinguish between customers who have a legitimate need for a wage instalment and those that are at-risk of increasing debt. “For those who are struggling, they can quickly be directed towards support services rather than receiving a loan that could send them further into a debt spiral.”
As to what happens next, Ayoub says that is not entirely clear, however, innovation is set to continue.
“We know that it will continue to push the payments and financial services industry to the edge of consumer-centric innovation for many years to come. In the BNPL and pay on-demand corner of the financial services market, this will help us get a more accurate picture of Australians’ finances, thereby enabling us to make more responsible credit extensions.”