Australia’s big banks, which made a $32.5 billion profit last year, are whingeing about the cost of the Consumer Data Right

- July 4, 2024 5 MIN READ
Daddy, I want another bank
Australia’s Consumer Data Right (CDR) turned four this week, and as the fintech sector gathered at a sold out event to discuss and debate its progress and possibilities, industry lobby group the Australian Banking Association (ABA) released a massive whinge on the issue.

The ABA commissioned a strategic review of open banking from consultancy giant Accenture, complaining that it’s not working because they’ve had to spend $1.5 billion since 2018 and only 197,000 people used it.

To put that figure in perspective, KPMG’s 2023 results analysis of Australia’s major banks found that they saw their profits jump by 12.4% – about 3x the inflation rate – on FY22 to a combined cash profit after tax of $32.5 billion.

That means $1.5bn is around two-and-a-half weeks of their profits last year.

Or just $200 million less than the record $1.3 billion fine Westpac copped over money laundering in 2020. Add the $700 million CBA was hit with in 2018 for the same issue – and you get $500 million in change from CDR, which makes it look like a bargain in a sector that has a proud history of non-compliance leading to significant financial penalties. Perhaps the numbers would be better if dead people had access to CDR to switch their accounts. But I digress.

One of the key complaints of the fintech sector over the last few years is their view that the major banks are dragging their feet, despite being forced to the table by the government, when it comes to engagement. There’s certainly a broad sense that things are not going as well as hoped amid plenty of suspicious side glances as to the reasons.

ABA CEO Anna Bligh said banks have “invested heavily to secure the success of CDR”, although many in the fintech space would probably file that claim under gaslighting.

“Despite the best efforts of Government, regulators and industry, this review makes it clear that CDR has not realised its potential,” she said.

“It’s time to go back to the drawing board. The current CDR regime isn’t delivering for customers or enhancing competition and a new pathway forward is needed.”

Bligh pointed to the uptake of mobile wallets and PayID in comparison to CDR as proof, with Accenture report claiming that only 197,000, or 0.3% of bank customers, had established direct connections to the consumer data right.

The usage figure cited in the Accenture report is a very specific slicing and dicing of the numbers – it’s the ongoing active CDR users. That’s a bit like saying Australians are not obsessed with property because at a given point in time, every weekend, only 10,000 of 11 million dwellings are sold.

CDR booming

Data aggregator startup Basiq put out its own report this week, Changing Perspectives: An inside look at Open Banking performance and adoption in Australia, which said that single fintech had enabled over 900,000 Open Banking connections between consumers and businesses to help with tasks such as budgeting, investing, tax reconciliation and loan applications.

Basiq founder and CEO Damir Cuca

Basiq founder and CEO Damir Cuca

Basiq said that number is expected to hit 1.3 million by December 2024. The thing to note is that the Basiq number includes screen scraping, a sub-optimal practice still being used, and how Basiq kicked off, before its conversion to CDR.

The three key findings of the Basiq report are that Open Banking growth is booming; it leads to more customer connections; and it’s superior for ongoing connections.

It also challenges the smoking guns left on the table by the ABA, with the Accenture report claiming that more than 50% of data sharing arrangements had been discontinued or allowed to lapse throughout the year.

Basiq CEO and founder Damir Cuca said that contrary to the belief that Open Banking results in high consumer drop-off, they found its success rate is almost double that of web scraping, with 80% chance of success compared to 42%.

Financial institutions implementing more robust anti-scraping measures and heightened business and consumer concerns regarding data security are impacting connection success rates. Only 0.17% of Open Banking connections face disruption after six months, compared to 15% for web scraping, making Open Banking 88 times more reliable for businesses requiring ongoing connections, such as budgeting or investment apps.

“We wanted to release our findings publicly to challenge the existing negative Open Banking narrative and provide a more optimistic perspective backed by data,” Cuca said.

“While Open Banking is far from perfect, the highly critical views circulating do not reflect the reality we see. Our platform data and customer feedback tell a very different story—one of growth and success.”

Between October 2022 and March 2024, Open Banking experienced a 30% compounded growth rate on Basiq’s platform, with connections rising from 10,400 to 777,000. In the last 12 months, almost 50% of all new connections on Basiq were made via Open Banking.

Compliance costs

The ABA’s argument is that high compliance costs, particularly for smaller banks, mean they’re forced to spend less on other areas such as digital banking experiences, scam detection and prevention. Yes, the industry that saw its profits rise 12.4% last year.

Michael Lawrence, CEO of ABA member the Customer Owned Banking Association, said customer-owned banks had collectively invested over $100 million in CDR, with very little benefit to customers or competition.

“While we support the intent of the CDR to increase competition, it has actually made it more difficult for smaller banks to compete by tying up resources with little to no tangible return,” he said.

“Before smaller banks commit more resources, we ask for a clear roadmap to ensure the CDR delivers on its original intent to improve competition. Forging ahead without addressing these foundational issues will further erode competition and divert essential investment away from improving customer outcomes and supporting local communities.”

The paradox in that argument is that increased competition means customer churn and reduced margins, which are additional costs. So $100m will be pocket change if your lifetime customer value starts falling.

FinTech Australia, which was hosted the CDR summit in Sydney yesterday, was diplomatic but pushed back on the ABA report, with CEO Rehan D’Almeida saying that while the fintech industry “has had an excellent working relationship with the banking sector”, the ABA didn’t share the report with them prior to its release.

Rehan D'Almedia

FinTech Australia CEO Rehan D’Almedia

“As we debate the relevance of the CDR, it’s worth refocusing on why it was commissioned and recommended by Treasury in the first place. This is first and foremost a cost of living initiative, aimed at improving competition, driving down prices, and enhancing financial decision-making — at a time when it’s needed most,” he said.

“This was vindicated earlier this year by a bank-commissioned [March 2024] report from Deloitte. It revealed the Australian economy would be $16.7 billion larger by 2043 if the data right expanded into retail, healthcare, and other personal and professional services. It would also create 50,000 additional jobs sparked by greater competition and new apps built on cross-sector data sharing.”

D’Almeida points to the 197,000 users figure in the Accenture report as not a true representation of what’s happening in Open Banking and wants the government to release more data to give a clearer picture.

“These are people who are actively connected to the CDR via their bank account and leverage it on an ongoing basis. Due to an enduring policy debate, use cases for the CDR are currently primarily in fields such as lending — mortgage brokers accessing data to help assess loans. This only requires single-use access, which is a different metric,” he said.

“Metrics such as the number of users, number of consents, and number of total API calls are not publicly available. We would encourage the Australian Competition and Consumer Commission (ACCC) and Treasury to release these metrics, along with data showing the usage of new consent types, including CDR insights and business consents. This would enable the ecosystem to holistically measure success, understand the most popular use cases, and celebrate the CDR being used to deliver benefits to consumers.”

The FinTech Australia boss also points the finger at Canberra for any lag in its roll out, because legislators are also slow to act.

“Many parts of the CDR legislation are still before Parliament and have yet to be passed,” D’Almeida said.

“The main driver here is Action Initiation, which will allow for easier switching of consumer accounts via bank accounts — enabling a significant portion of the advanced use cases of the CDR. Movement on this policy has been frozen in its tracks for just under two years.”

For decades banks have relied on customer torpor and the difficulties of switching to maximise profits and reduce customer churn. In that context, CDR is an existential threat, making it easier for customers to change banks based on data that can offer them a better deal, at the click of a yes button.

As Square founder Jack Dorsey said: “Success is never accidental.”