While fintechs have welcomed the recent passing of the Consumer Data Right bill, the sector faces challenges when it comes to taking advantage of the real opportunity Open Banking presents.
The bill is part of a series of steps towards the full introduction of the Open Banking regime, slated for 2020. The initiative gives consumers more control over the data financial services institutions hold on them, for instance their transaction records. The initiative will allow third parties such as fintechs to access consumer data, so the former – as well as incumbent banks – may design products and services that more closely meet their needs.
For instance, if someone with an unblemished record paying their mortgage is able to give this data to a lender other than their existing one, the consumer may be able to negotiate a more favourable interest rate.
Ross Sharrott, founder and executive director of budgeting technology Moneytree Australia, who is also a member of the Advisory Committee of the Data Standards Body for Open Banking in Australia, notes the Consumer Data Right is a unique feature of Australia’s version of Open Banking.
“Other markets like the European Union and Japan have also developed Open Banking frameworks that allow consumer data to be shared between different financial services institutions, but with different starting points.
“In the UK, for example, the focus has been on creating a data sharing framework only for financial services, without plans to replicate this across other industries. In Japan, the framework emerged from the industry’s need to standardise data information processes. We believe the Australian design is superior in the long run.”
Sharrott says overall, Australia has been more enterprising than other countries when it comes to open banking. “None have the equivalent of a Consumer Data Right. Other countries will be watching us with interest and I anticipate many will seek to adopt a similar Consumer Data Right down the track.”
Fintechs see Open Banking as a leveller. “It democratises access to the large pool of Australian financial services consumers who are with the major banks,” says Manu Iyer, client principal with technology consultant ThoughtWorks. He says it should increase competition in financial services and allow incumbents and fintechs to provide more personalised products and services.
Moreover, many fintechs have an advantage because they are not weighed down by legacy systems like the big banks. Which is not to say banks don’t invest heavily in their tech. Paul Moss, MyState Bank’s general manager technology, operations and product says the bank has been upgrading its tech. “We are working from completely upgraded systems … I am glad we are not in the position of building Open Banking and upgrading our tech stacks at the same time.”
Given big banks’ traditional domination of the sector, the road ahead won’t be easy for fintechs to take market share from the incumbents. “The challenge is lack of access to consumer data, particularly creating and testing some of the new product offerings and personalised services using Open Banking data,” says Iyer.
Another issue will be fintechs’ ability to integrate with banks. He says this process took eight months for UK fintechs and the winners will be those are working through this maze now. “Moving early is critical. Don’t wait for the big banks to be ready.”
Indeed, the success of Open Banking hinges on fintech access to bank data. “Access to bank data is the lifeblood of many fintech products and services. Currently, many rely on a resource-intensive and less effective process known as screen scraping to collect bank data,” explains Michael Lukman, managing director of compliance consultancy Generation Advisory.
Additionally, Alison Morris, a vice president with payment technology firm Worldpay, has welcomed the passing of the Consumer Data Rights bill. “But there is still a long way to go before banks and fintechs get real clarity on how Open Banking will work in practice.” For instance, they need more information about how the process of becoming accredited to receive customer data will work. They also need more detail about privacy requirements and consumer data standards.
Adrian Melillo, Asia Pacific regional executive for software business MuleSoft says fintechs need to demonstrate they can manage the data they receive to become accredited data recipients. “Many will need to upgrade their existing information security environments to comply, including securing their APIs and applications.”
Moreover, he says the real opportunity for fintechs and banks isn’t to compete with one another, but to find ways to collaborate for mutual gain and offer more personalised customer experiences.
“As open banking continues to unfold across Australia’s banking and financial sector, we’ll start to see fintechs become complementary to banks’ core products.”
But there is some way to go before this vision becomes a reality.