Implementation of open banking scheme to begin in July 2019

The Federal Government has announced its accepting of the recommendations put forward by the Review into Open Banking in February, with implementation of the scheme to begin in July 2019.

According to a statement from Treasurer Scott Morrison, open banking will be phased in with all “major banks” to make data on credit and debit card, deposit and transaction accounts available by 1 July 2019, and mortgages by 1 February 2020. Data on other products, such as personal loans, must be made available by 1 July 2020.

All remaining banks will be required to implement open banking on a 12 month delay on the timelines of the major banks, Morrison stated.

The Australian Competition and Consumer Commission (ACCC) will be tasked with promoting competition and “customer-focused outcomes” through the scheme, Morrison said, while the Office of the Australian Information Commissioner (OAIC) will oversee privacy measures.

Meanwhile, CSIRO’s Data61 arm will be the Data Standards Body, working with industry, fintech business, and consumer and privacy groups to develop technical standards for the system.

In announcing the decision to accept the recommendations of the review and implement the scheme, Morrison said open banking has the potential to “transform the competitive landscape in financial services and the way in which Australians interact with the banking system”.

“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.

“Customers will be able to use their new data rights to find better deals on their credit cards, mortgages and other banking products. Comparison services will be better able to assess the value and suitability of all available products, taking into account the individual circumstances and needs of the customer. This will help to break down barriers that see customers staying with their banks even when there are better deals elsewhere.”

More than 50 recommendations were made in the 158 page report, authored by Scott Farrell of legal firm King Wood & Mallesons and released in February, covering four core principles.

Above all, open banking should be customer-focused, the report stated, for the customer, about the customer, and seen from the customer’s perspective; and it should encourage competition, and increase competition for banking products and services available to customers so they can make better choices.

Open banking should also create opportunities, the report stated, by providing a framework through which new ideas and business can emerge and grow, establishing a “vibrant and creative data industry”; and it should be efficient and fair, effected with security and privacy in mind, so that it’s sustainable and fair without being more complex or costly than needed.

The establishing of an open banking regime was first announced in the 2017 Budget, part of a wider Consumer Data Right put forward by the Productivity Commission’s inquiry into Data Availability and Use.

The Productivity Commission recommended that a ‘Comprehensive Right’ to data should allow consumers to, among other things, share joint access to and use of their data with the data holder, receive a copy of their consumer data, request edits or corrections to it for accuracy, and be informed of the trade or other disclosure of consumer data to third parties.

Morrison allocated $44.6 million over four years in Tuesday’s Budget to the development of a Consumer Data Right, which will be established sector by sector, with the banking, energy, and telco sectors first up.

Of this, just over $20 million will go to the Australian Competition and Consumer Commission (ACCC) to help it determine the costs and benefits of designating the sectors that will be subject to the Consumer Data Right, as well as develop and implement rules to govern the Consumer Data Right and the content of data standards.

Fintech Australia chair Stuart Stoyan welcomed the announcement, saying a government-backed open banking framework will be a “game changer” for both consumers and businesses, and will drive “a new wave of fintech innovation and growth”.

“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,” he said.

The stats show Australians are already world leaders when it comes to fintech adoption: a 2017 report from Ernst & Young ranked Australia fifth overall for adoption of new financial services technologies, following China, India, the UK, and Brazil, with an adoption rate of 37 percent among the country’s ‘digital population’, up from 13 percent in 2015. The global average was 33 percent.

According to the report, the main barriers to adoption of fintech services are decreasing in importance; consumers preferring to use a traditional financial services provider, for example, dropped from being a key barrier for 23 percent of respondents to 10 percent (or perhaps lower, now, in the wake of the Royal Commission).

Among those looking to capitalise on the open banking scheme will be fintech startup Volt, which was authorised as a restricted deposit-taking institution (ADI) by the Australian Prudential Regulation Authority (APRA).

Volt is the first of the ‘digital banks’ to secure the licence, which itself was launched last week.

It is applicable for a maximum of two years, during which a licence holder is allowed to  conduct “limited banking business while developing their capabilities and resources”, in effect “facilitating entry into the banking sector while not materially lessening entry standards that serve as important protections for the Australian community”. The restricted ADI must meet the prudential framework in full within two years.