Open Banking: What you need to know and myths busted

Open Banking: What you need to know and myths busted

  • The Review into Open Banking made 50 recommendations for the banking industry that began being phased in from July 1, 2019. 
  • Open Banking means consumers will be able to control the data banks and other financial institutions hold about them.
  • This new open data environment is expected to favour consumers, and since the banks are the first sector to implement these new changes, an increase in competition is expected.

Back in July 2017, then-Treasurer Scott Morrison announced a review into Open Banking in Australia. By December of the same year, the report was finalised as the Review into Open Banking (“the review”). This report made 50 recommendations ranging from security for bank customers to regulatory frameworks and how data can be transferred between institutions.

The government then announced it had accepted those recommendations and the phasing in of Open Banking was to begin from July 1, 2019.

If you’re thinking ‘Yeah, so what?’, keep reading, because Open Banking will make it easier for you to switch banks and maybe even get better deals.

How did we get here?

How did we get here

Banks and other financial institutions hang onto your customer data tightly. You see, the way you do your banking, the manner in which you conduct your finances, is very valuable information and they don’t want to share.

To put it another way, remember way back in the early 2000s when mobile phone companies ‘owned’ your phone number? The idea of switching carriers was just too much drama so you stayed put. Maybe you paid too much, maybe you put up with bad customer service, while the big companies took us all for granted and just did whatever they wanted.

Then the government stepped in and introduced portability legislation which meant consumers could easily port their phone numbers. Finally, we started to see competition in our favour as companies suddenly had to work for our business.

Open Banking is similar, but let’s break it down a little bit more because our finances are just a bit more complicated than our mobile phone carrier.

What is Open Banking and Consumer Data Right (CDR)?

Open Banking means consumers will be able to control the data banks and other financial institutions hold about them. It’s long been a contentious issue as to who owns your data – you, or the institution who has collected it.

As noted above, Open Banking is being introduced in phases, with basic product information accessible from July 1, 2019.

Along with the phasing in of Open Banking, the government is introducing the legislation Consumer Data Right (CDR) for all Australians. What this means is you’ll now be able to:

  • Choose who to share your data with
  • Confirm the parties you share with are authorised
  • Guarantee they only use it for its intended purposes.

This new open data environment is expected to favour consumers, and since the banks are the first sector to implement these new changes, an increase in competition is expected. 

For too long the banks have been able to announce those monster profits, all the while providing us with increasingly poor customer service. They’ll no longer be able to take us for granted, and this means you’ll be able to negotiate better deals and therefore save money.

Just as a side note, it’s expected that following the banks, the energy and telecommunications industries will be next. The good news for consumers just keeps coming.

Is this a good thing for everyone?

As with any major change, particularly when it concerns the banks and our money, people tend to feel a bit nervous. Lots of information starts to come out, some of it is conflicting and confusing, and people start to ask questions.

The good news is we like questions. It means you’re engaged and much more aware of what these big companies are doing with your money.

Let’s address a few of the most important questions we are being asked and also try to debunk a few of the myths being thrown around the internet.

Mythbusters

Myth 1: Open Banking is only for digital and neobanks

First, let’s clarify that a digital bank is just that; a bank that operates only digitally, and usually from an app. There’s no physical branch or storefront. A digital bank is a rather relaxed term and the correct industry name for a digital bank is a neobank.

These neobanks have always operated at a disadvantage because, until now, the big banks have kept all our consumer info under heavy guard. Therefore, without access to this information and without customers being able to give them this access, the neobanks have been flying a bit blind.

You don’t have to be a rocket scientist to understand that without all of the usual overheads such as rents, customer-facing staff and all the accompanying costs, these neobanks are in a prime position to offer you, the consumer, the very best of rates.

So, when it comes to big banks vs neobanks, Open Banking doesn’t favour one or the other. But what it does do is even up the playing field. And let’s face it, it’s likely to be the customer who scores goal after goal.

Myth 2: My bank can give away my data

All consumer data will continue to be protected by the Privacy Act (1998). The review noted:

The Privacy Act requires businesses to take reasonable steps to protect personal information they hold from misuse, interference and loss, as well as unauthorised access, modification or disclosure.

Any breaches of the Privacy Act will be referred to the Office of the Australian Information Commissioner (OAIC), which not only has the power to investigate a complaint lodged by a consumer, but also has the power to commence an investigation following a data breach.

As your data is protected now, it will continue to be so. Nothing has changed in that respect, only in the ways it can be shared.

Myth 3: Open Banking can enhance exposure to the threat of cybersecurity

Robber braking into bank using laptop

Data security was always going to be a very big concern with open banking. That’s why the review highlighted the need for improved security and privacy.

Financial institutions and other companies that utilise Open Banking will need to observe strict security when accessing and storing your data. As noted above, they’ll also be subject to the Privacy Act and will only be allowed to access your data if you say they can, and they can only do with it what you want them to do.

Nevertheless, as financial data starts to move around cyberspace in gradually larger amounts, there’ll be greater scope for potential breaches. But banks and financial institutions have always invested heavily in cybersecurity, and this will be no different.

Myth 4: Only bank accounts will be affected

True, but only at this stage. The Open Banking changes are being rolled out slowly and won’t be complete until mid-2021.

The expected rollout timeline is:

1 July 2019 – the Big Four banks (CBA, ANZ, NAB and Westpac) make credit and debit card, deposit and transaction account data available.

1 February 2020 – the Big Four make mortgage data available.

1 July 2020 – the Big Four make consumer data available on all other nominated deposit and lending products.

All other banks and authorised deposit-taking institutions (ADIs) will operate under the same timeline, but with a 12-month delay.

Open Banking could make it easier to change financial institutions

The fact is we’ve always had the power to be able to move our finances around, but most of us don’t bother because it’s a hassle and takes too much time. The banks know this and have been happy to reinforce this for us, to allow us to continue to think this way.

Remember my mobile phone analogy? That’s now how easy it’ll be to get your data from your old bank to your new one. If you choose.

Nobody has to do anything, but it means for those who do want to chase better interest rates or better customer service, it just got a whole lot easier.

You get to pick and choose

Now you can leverage all your hard-earned money and, eventually, all that juicy interest they’ll make on your mortgage, for much better rates. You can authorise any accredited institution to access comprehensive data from your bank.

We think this is going to be a great time for the consumer. You can choose, and choose is the optimal word here, to move around your money. Or not. Want to move to a bank with better customer service or a better choice of products? Now you can, much more easily. 

And that’s really what it’s all about.

Your money. Your choices.

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