Denham Sadler
May 10, 2018

Govt backs open banking framework

Budget 2018

Govt backs open banking framework

Scott Morrison: The open banking regime will have adequate protections in place

FinTechs left disappointed by a lack of further open banking announcements in Tuesday’s budget only had to wait until the next day for the big reveal.

The federal government late on Wednesday officially unveiled its framework and timeline for Australia’s open banking scheme, rejecting attempts from the big banks to delay the rollout.

In its full response to the Farrell Report on open banking it largely agreed with most of the recommendations.

The government will follow a “challenging but realistic timeframe” for the roll-out, with all major banks being required to make credit and debit card, deposit and transaction accounts data available by July next year.

The Australian Banking Association previously labelled this proposed timeline as “unfeasible” and “highly ambitious”.

Data relating to mortgages would be made available to consumers by February 2020, while all remaining data on products must be available by July 2020. Other small banks would be given a 12-month delay on this timeframe.

The ACCC, OAIC and Data61 each play major roles overseeing the open banking regime and to ensure stringent data protection rules are in place.

Treasurer Scott Morrison said “strong privacy protections” would be in place, only accredited third parties would be able to access the financial data, and “express consent” would be required from all customers before the data is shared.

“Open banking has the potential to transform the competitive landscape in financial services and the way in which Australians interact with the banking system,” Mr Morrison said in a statement.

“It will give banking customers greater access to the data their banks hold on them and the ability to direct that it be safely transferred to trusted and accredited service providers of their choice,” he said.

“Open banking will also allow entrepreneurs to develop new services and products tailored to customers’ needs, disrupting those existing business models within the banking sector that do not put customers first.”

Chris Michael, who is leading the implementation of open banking in the UK as head of technology at the UK Banking Industry, is currently in Australia as the keynote speaker at Ping Identity’s events in Sydney and Melbourne, said the Australian government is moving in the right direction.

“It’s a smart move to have central government funding and a concept of some central implementation support around it,” Mr Michael told InnovationAus.com.

“I’m quite encouraged by Australia’s approach and attitudes that I’ve seen from people. They’re looking at this as an opportunity not as a threat,” he said.

But outlining the timeframe and framework for open banking is the easier part of the process, Mr Michael said.

“It’s not just about creating a standard, that’s the easiest bit. It’s more about how you get the ecosystem off the ground.

“There are a lot of other things you need to do to provide support in the ecosystem, and having some central funding and a central remit is a very positive thing,” he said.

“There’s a bit of scepticism about it and some people are looking at it as a regulatory tick-box exercise, but that’s the wrong way to think about it. In Australia, even the big banks seem positive about it generally.”

The government’s announcement would also please Australia’s burgeoning FinTech community, which has been arguing for a timeline following that prescribed by the Farrell report, although the six-month wait on mortgages will be disappointing.

The big banks had pushed for an 18-month implementation timeframe, beginning once all relevant legislation was passed by Parliament. The major banks had also argued that mortgage and lending data should not be included in the first phase.

The announcement was welcomed by FinTech Australia, which has been working closely with the federal government on the open banking policy framework.

“A government-backed open banking framework will be a game-changer for consumers and businesses, and will drive a new wave of FinTech innovation and growth in Australia,” FinTech Australia chair Stuart Stoyan said.

"Finally, customers will be able to use a regulated system to unlock the power of their own data to get access to financial services better tailored to their needs.

“This reform is expected to force downward pressure on lending costs, allow people to more easily manage their budget and be able to shop around for the best investments.

“They will also be able to easily switch their bank accounts to new FinTech challenger banks. Put simply this means better customer outcomes.”

The FinTechs have also been lobbying against the big banks’ arguments that open banking should be delayed, and less data should be included.

“We are pleased that the Australian government has stood up to the big banks, which wanted to delay this reform into the never-never and significantly reduce the amount of data consumers could access,” ZipMoney chief strategy officer Tommy Mermelshtayn, also the co-lead of FinTech Australia’s open banking policy working group, said.

"It’s no surprise that banks were fighting to delay the introduction of mortgage and credit card data, given these are among their most profitable areas," he said.

The government first announced its intentions to move forward with an open banking scheme in last year’s federal budget. It then commissioned a report, which gave the green light to the concept in February this year.

The government has also outlined some of the logistics of the open banking scheme, and how it will be regulated. This week’s federal budget allocated $44.6 million over four years for the implementation of the National Consumer Data Right, while a National Data Commissioner will also be appointed.

Of this, the Australian Competition and Consumer Committee would receive $20.2 million over four years to help it to develop the rules surrounding open banking, and an accreditation system for third parties looking to access the financial data.

“The ACCC is establishing a dedicated Access to Data Unit to undertake all these functions, and also to advise the Treasurer on which sectors should be designated in the future, with energy and telecommunications currently being considered,” ACCC chair Rod Sims said.

The Office of the Australian Information Commissioner has been tasked with ensuring the appropriate privacy protections are in place over the data, and will be given an extra $12.9 million over four years to do so. This funding will also be used by the OAIC to assess the privacy impact of extending the consumer data right to other sectors.

“The OAIC will support strong privacy protections under the CDR and welcomes the funding of $12.9 million over the forward estimates to perform this role The OAIC looks forward to working closely with the ACCC, Data Standards Body and stakeholders to support the successful implementation of the CDR,” acting Information Commissioner Angelene Falk said.

Data61 has also been tasked with overseeing a newly-created Data Standards Body, which will develop the technical standards for open banking, in collaboration with other stakeholders. The CSIRO was allocated a further $11.5 million over four years in the federal budget for this role.

The banking sector will be the first to implement the National Consumer Data Right through open banking, with the energy and telco sectors to soon follow.

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