The delay to allowing data intermediaries to fully participate in the Consumer Data Right (CDR) will significantly curtail the effectiveness of open banking in Australia and the creation of a robust CDR ecosystem.
The first of July marked the official start of open banking in Australia. Open banking is the sharing of financial data between consumers and financial institutions with the consumer’s consent.
For individuals, open banking offers huge potential to improve their financial services’ experiences and financial progress.
The Consumer Data Right (CDR) is the legislative driver for open banking, it gives Australians the ability to obtain their data from financial institutions and share it easily and securely with other providers to their advantage. For example, consumers may use their financial history to apply for a new product or seek better terms.
However, draft rules for the management of the CDR prevent Australian consumers and businesses from realising the full benefits of open banking, as they do not authorise the disclosure of CDR data to accredited data intermediaries.
A data intermediary is a service provider that simplifies the connections, regulatory reporting and compliance costs, and can enrich the capabilities of the ‘basic’ data provided by the CDR.
The data intermediary makes it easier for companies to use CDR data as part of a service and this, in turn, encourages the development of innovative services and solutions to consumers.
Delaying the full participation of data intermediaries in the CDR will discourage innovators from participating and will not make the Australian finance sector more competitive.
This delay defeats the initial purpose of open banking: to create a level playing field that will not only drive competition, but also encourage innovation that will meet the expectations of our digital economy.
In the current climate, with millions of Australians trying to access personal and business credit under the government’s hardship scheme, data intermediaries have a role to play in COVID-19 recovery.
By providing lenders with automated and accurate data over and above what is available on credit scores, data intermediaries can help improve the flow of credit to Australians at a time when it is needed most and minimise the potential risk of fraudulent activities.
Benefits of intermediaries in the CDR ecosystem
By widening the current CDR accreditation scheme to allow intermediaries to provide data to unaccredited parties, we will see the ownership of customer data put into the hands of Australians and give them the power to access better deals.
For consumers, a mature open banking environment will make it possible to switch providers or apply for a loan with a few swipes of an app, access account details from several banks in one app, and access completely new automated comparison, budgeting and saving tools.
Data intermediaries that provide such services are of value to financial institutions as well as consumers as financial institutions do not need to build their own capabilities.
Many of Australia’s major incumbent financial institutions have publicly stated they are supportive of the full participation of intermediaries in the CDR ecosystem if appropriate security arrangements are in place.
Data intermediaries are already a central element of open banking systems overseas. In the United Kingdom, companies that wish to use data can become an ‘agent’ of a fully accredited recipient without having to do the costly and time consuming steps of building, testing, and getting their own systems accredited.
This has led to many companies providing innovative solutions faster to the market without compromising the security or privacy of open banking.
In Japan where open banking has been evolving since 2015, we have seen that the standardisation and enrichment of data carried out by companies like Moneytree has been a powerful enabling force for the success of open banking and led to the creation of innovative value-added services for consumers.
If we wish to accelerate our economic recovery post COVID-19 and beyond, it is imperative the right environment is created whereby individuals and businesses can fully utilise their financial data and banks and other financial services’ providers can uncover new areas of opportunities for future growth in the long term.