Last year, the Hayne Royal Commission took up most of the financial news in Australia, and from the reactions and outrage that blew up in the wake of the full details of how the banks had systematically cheated Australians financially, we knew there would be changes coming for our banking systems.
And the changes are starting to trickle through.
The future of banking looks to be open banking.
But what is open banking?
According to the ABC, ‘Open banking means the Commonwealth Bank, Westpac, ANZ and NAB will have to make credit card, deposit and transaction data available if customers request it.’
And this will all begin on 1 July of this year.
Mortgage data will become available from February 2020.
In the image below, you can see the steps taken to change our banking system since 2017:
Basically, open banking will give consumers more control over their financial data. It will give you direct access to your data with banks and other financial institutions.
Consumer benefits of open banking
What are the benefits of open banking, and why is it better for you compared to your options now?
For one, it is currently very difficult, time consuming and costly to try and access your financial and banking data.
But having full exposure to your data could help you make informed decisions regarding your financial needs that you may not have right now.
On top of that, banks and financial institutions will be driven to compete with each other for your services. Added onto that, the notion that there might be better services created due to competitiveness.
So, how do we even know it’ll work?
Well, it’s already been implemented in the UK and in the EU last year. And the US and Singapore have started to take the necessary steps to implement open banking.
How will it work? As finder.com.au explains:
‘There are myriad possibilities for open banking. One is for opening a new bank account. Right now, opening a new bank account can be annoying as all of your transaction history will remain with your previous account. While you can save, print off or continue to access this information it cannot be a part of your new account. Under open banking, you will be able to direct your former bank to send all of your transaction account data to your new bank to make switching easier.’
Competition law specialist, Professor Deborah Healey said:
‘I think this is potentially Earth-shattering for the financial services industry…
‘Because these are very important decisions people are making and I think they will put time and effort into making those changes if — in fact — they see that something better is on offer.’
Jamie Leach, founder of Open Data Australia, believes that Australians are already thinking differently thanks to the upcoming introduction of open banking:
‘The potential for people to move between brands, or the ease for people to be able to have products with multiple brands and still be able to track that through a single app, is real and that’s happening right now…
‘The old days where people have all their “eggs in one basket” because it’s easier, is not going to be the future…
‘It’s going to be a bit of a game changer…
‘What it is, is you being able to determine if you want a third party, if you want an app that’s going to make your life easier to navigate or offer you better rights, for instance, to access your credit, follow your banking history.
‘It’s about giving consumers that choice’.
So how long will it take banks and financial institutions to nail down open banking?
Tasmania’s Bank of Us Chief Executive Officer, Paul Ranson, believes anywhere between three and five years.
Ranson also believes this is in the best interest of the consumer:
‘It’s going to become simpler for consumers to really understand, “am I getting value for the products?”
‘And it’s going to be the start of our overcoming the inertia that people have about moving from one provider to another.’
Power shift to consumers
In the end, the power is shifting from banks to the consumer. While the big four banks will switch over to open banking on 1 July 2019, smaller banks and institutions will have a little bit longer to implement the changes.
Sally Mackenzie, strategy director for the Customer Owned Banking Association, believes that this will help customers receive tailored financial advice and products.
‘Consumers will have the right — it’ll be their choice — whether they want to share their data. It’ll be entirely up to them,’ she said.
‘But if they do they’ll be able to receive advice on what the best credit cards is, for example, based on whether they pay it off at the end of the month or carry over the balance.’
Professor Healey also believes that competition will be brought back into the banking and finance game, benefiting the consumer in the long term:
‘The days when your bank was a “bank for life”, I think are long gone anyway,’ she said.
‘But I think there will be a lot more movement and it will also stimulate competition.
‘Even the threat of switching is very important in terms of having an efficient competitive market.’
The option of open banking will allow consumers to make more informed choices when choosing the best financial advice and products for their financial needs. We always knew that the Banking Royal Commission would bring about changes that would benefit the consumer, and with open banking we are seeing this come into play.
Editor, Markets & Money