The changing landscape of Australian banking
By Adrian Melillo, Client Architect, MuleSoft
On August 1, the government passed the Consumer Data Right (CDR) bill, which will lead to a major shift in the relationship between banks and their patrons in Australia. The ‘Big Four’ banks have already implemented the CDR to make product data available. And by February 2020, consumer data for mortgage accounts, deposit and transaction accounts, and credit and debit cards will be made available to customers. This is an enormous undertaking for traditional banks, requiring them to digitally transform at an unprecedented rate.
The full implications of the CDR and its application to open banking are now becoming clear, and forward-thinking leaders in financial services are realising that this is the biggest regulatory shakeup to the cosy, closeted world of Australian banking in the last 30 years. By giving consumers control over who has access to their data, power is being rebalanced between banks and their customers.
Banks are starting to ramp up their preparations for open banking—not just to achieve compliance but also to take advantage of the new market opportunities. As a result, preparations are not just a technical exercise. Fundamental business decisions need to be made regarding their approach to open banking. Banks that relentlessly focus on their customers, embrace disruptive technology trends and personalise products and services will survive the disruption of open banking and reap the benefits of brand and commercial success.
Modernising legacy systems
While open banking presents clear benefits for agile fintech startups, it poses significant challenges for incumbent banks. Many banks still rely on core IT systems that have been in place for decades, and these systems are usually complex and difficult to change.
The ‘rip and replace’ approach taken by some large Australian banks towards these legacy systems can occupy a bank’s technology division for years and divert attention and resources from more innovative activities. Then once the bank is ready to innovate, the market is likely to have moved on.
Other banks are working to wrap their existing systems in integration software that keeps them operational while allowing additional applications and services to be added. The challenge with this approach is that it retains the complex web of custom integrations, which tightly couples applications together so organisations can’t bend. These connections are challenging to decommission and often have unintended knock-on effects to other systems.
Unbundling and extending with APIs
To achieve flexibility, banks need to unbundle and unlock their core systems and data with APIs. Once unlocked, the valuable data can be offered as a service for internal and external developers to build value on top of. A developer can choose from a range of applications, data sources and devices and use APIs to connect them in different ways to create something special. New banking apps, such as those provided by Barclays and HSBC in the U.K., show customers’ their consolidated financial positions across service providers. Instant mortgages will make auction days in Australia’s capital even more exciting than they already are.
Fintech startup Tic:Toc, for instance, has reduced the home loan approval process down to as little as 22 minutes compared to the industry average of 22 days with an API strategy and application network. As a result, Tic:Toc was able to connect its various systems in its proprietary loan approval process and quickly and securely share data, regardless of format or source. In addition, HSBC is rolling out a new set of open banking apps through its First Direct brand to resell competitors’ products.
Once a bank begins connecting its applications, data and devices together via APIs, an application networks begins to form. As market conditions change, the bank can remain flexible, plugging and unplugging the capabilities it needs. With an API strategy and an application network, Australian banks can create an open ecosystem around their existing products and services, joining more value chains and ultimately driving revenue.
Future of finance
The Australian finance sector will be in a very different place in the coming years. As the traditional ways of banking get fully automated, many retail bank branches will close and services will shift to digital only. Branches that remain will change into customer experience centres, open to all and focusing on learning opportunities and virtual sales experiences. They will be truly omnichannel with the in-person experience designed to enhance the digital transaction.
Loyalty will come to those who relentlessly focus on the user and build trust by leveraging digital technology to create personalised products and services. Banks that know how customers are using their products and what customer expectations are will be rewarded with a great reputation, customer trust and ultimately commercial success.
Through the disruption of open banking, new revenue streams will replace existing ones lost. New market opportunities will open up from the decision to extend the CDR to the telco and energy sectors, with telco likely to be announced in 2020. Imagine receiving an alert from your bank to let you know your telecom’s bill has just been debited for the month, and then receiving an offer to switch to a cheaper plan. Replying by text, you can have your new service switched and the SIM card mailed. With such ease of operation, who would not switch?
The banking industry is poised to change drastically over the next decade, with open banking serving as one catalyst. With application networks at the heart of banks’ IT infrastructures, they will be well-positioned to tackle future challenges as they appear. Australia is cleverly learning from early adopters in the U.K. and even extending the open banking initiative to be a true open data regime that will drive competition across a number of sectors for the benefit of consumers.