Banks told to open up their data
Jost Stollmann: Open data and open APIs, that's the key to survival for the local finance sector
There’s a clash developing between traditional finance institutions and the new wave of disruptive FinTechs and RegTechs over data access that may take government intervention to rectify.
FinTechs and RegTechs want the banks to open up their data and APIs, but the banks are unsurprisingly cautious about changes to the status quo.
The tension was on display at the InnovationAus.com’ RegTech Australia 2017 event in Sydney this week.
In a panel discussion moderated by the chair of the newly forged RegTech Association Julian Fenwick on the theme of where RegTech was headed over the next 12 months and likely distractions, the big banks were represented by Westpac Group general counsel and chief compliance officer Rebecca Lim, while, Tyro executive director Jost Stollmann spoke on the side of emerging finance and regulation techs.
Also on the panel were ASIC senior executive leader for strategic intelligence Mark Adams, Data61 research director Liming Zhu and IBM’s Asia-Pacific leader for the Watson platform, Murray Bruce.
“My view is the FinTechs and RegTechs are not going to scale up in Australia if they don’t get access to data. I have this view that there is the potential for Australia to leapfrog by going into the API economy,” Mr Stollmann said.
He called on the big four banks to “do something for the country” and open up their APIs.
“The major banks would allow FinTechs and RegTechs to innovate and let the best idea win. Attend the competition – don’t buy them or stifle them,” said Mr Stollmann adding that security around this sharing could be ‘figured out’.
Financial API and data sharing is already underway In Europe. The Council of the European Union has passed Payment Systems Directive 2 (PSD2) which will enable European consumers and businesses to instruct their bank to share data with other providers and it will also allow them to instruct their bank to accept transactions on their money.
With the passage of PSD2, member states have until November this year to incorporate the directive into their national laws and regulations. The new law has already caused a surge in European FinTech and RegTech valuations.
Westpac’s Ms Lim said banks needed to be comfortable with how a FinTech or RegTech application worked.
“When we as a bank think about RegTech, one of the things we are very focused on is the bundling of services that might be provided by RegTechs," Ms Lim said.
"How do I get assurance that if I use a form of artificial intelligence, that it has been trained to a standard that my board and my customers and my regulator would be happy with?”
“When we think about data sharing the relationship between the regulator and its licencees will change. We will potentially move to a world where most if not all our data will be shared in real time with our regulator so then what is the role of the regulator in that situation?
"What happens to the concept of breach reporting and whose responsibility is to sing out when they see something first and change it?”
IBM’s Mr Bruce, a former submariner on Australia’s Oberon and Collins class subs, said strong leadership would be needed in the disruptive world of finance technology.
“Looking at this disruptive innovation a lot of the time we bring together data, technology and create networks there’s no substitute for leadership in that environment," Mr Bruce said.
"You will get strong industry leadership but its another layer all together to get strong industry and government leadership.
“ASIC is doing a great job in trying to create that. But that strong leadership to set direction is very important to break through. There’s a risk that if we just sit there and accept things and think we can increment our way along. In a lot of this we need to be disruptive and that will take strong leadership,” he said.
Asked after the panel discussion if the big banks were likely to embrace open banking of the style Mr Stollmann had proposed, Ms Lim said it was a difficult
“These are difficult decisions for us and there’s not going to be a one size fits all answer. Do I think Westpac will open up in certain aspects – absolutely. Are we interested in a KYC (Know Your Customer) utility and sharing data – absolutely,” said Ms Lim.
Asked specifically about whether the big banks would open up their APIs, Ms Lim was a little more circumspect.
“I think they will do that in a phased approach. I think they understand that it has to happen in some way, shape or form but there are a lot of competitive aspects, a lot of strategic aspects and a lot of financial aspects to work through. Do I think that will happen – absolutely.”
After the panel, Mr Stollmann said there would be no change in the open banking debate unless “government puts its foot down.”