Let’s get Open Banking open for business

Let’s get Open Banking open for business

On the second anniversary of Open Banking in Australia, BankiFi A/NZ Country Manager Lloyd Parata shares some insights about the benefits of the Consumer Data Right (CDR) for small businesses and the unintended consequences of delay in legislating action initiation.

According to ABS data, there are some 2.3 million small businesses in Australia which is 97% of all businesses.   

Small- and medium-sized enterprises (SMEs) are the proverbial “backbone of the economy.”  

SMEs currently face mounting economic challenges, responding to inflation, rising interest rates, increasing rents, a tight labour market, and global supply chain shortages. 

Against this background, financial resilience is vital, including access to funding. 

Banks can use open banking to help SMEs

Banks want to support SME customers and are ideally placed.  To help by providing a tailored service, however, requires a holistic financial picture and an understanding of the customer’s unique situation, which will vary across the diverse SME cohort.  

It’s possible with open banking, in fact, account aggregation, cash flow insights, working capital management and loan origination are key use cases.   

Open banking presents an opportunity for banks to partner with SMEs to empower them to be smarter and more efficient when making business decisions and managing their finances.  

Use cases and action initiation should be the priorities

Turning two years old on 1 July 2022, open banking in Australia is enabled by the Consumer Data Right (CDR).   

The promise of the CDR – notwithstanding the word “consumer” in its name it includes businesses – is to enable choice, convenience and confidence.   

Banks have done the hard work connecting into the open banking ecosystem as data holders to supply the required banking data on demand via secure APIs.  The ACCC’s CDR performance dashboard shows the majority of banks have 100% availability and response times under half a second. 

Implementation gaps are being rectified and most data holders should be registered, active and compliant by the end of the year. 

It’s therefore time to change the conversation to focus on use cases and action initiation, rather than compliance.

CDR is an opportunity for banks to deliver customer benefits and gain competitive advantage as data recipients.   CommBank, NAB and Westpac – plus a handful of smaller banks – have already taken the initiative to become accredited data recipients which enables them to ingest consented customer data to create a more informed picture of a customer’s finances.   

Overseas precedents demonstrate how open banking is helping SMEs to improve cash flow.  In the UK, banks are investing in open banking enabled products for SME customers because the benefits are huge.  For example, an SME banking platform powered by BankiFi has resulted in 51% of customers being paid within two days of invoicing.

Let’s finish what we’ve started 

In his “Future Directions” report delivered to Treasury in October 2020, Scott Farrell made 100 recommendations in total.  In particular, he recommended extending open banking to include general action initiation, CDR payment initiation and read access enhancements.   

In December 2021, the previous government accepted all recommendations relating to action initiation and payments and a majority of recommendations relating to enhancements.  However, since then, there has been no further information. 

This lack of progress is hurting Australia’s small businesses.   

It is not well-understood why the previous government chose to move ahead with rolling out CDR to energy before finishing banking.   

For the sake of our SMEs and economic growth – and to unleash the transformative potential of our innovation ecosystem and grow our digital economy – the new federal government needs to crack on with open banking.