UK’s open banking revolution has lessons for Australia
There’s a revolution going on in British banking. The UK’s Competition and Markets Authority (CMA) issued its final order on “open banking” in February. The new regime – on track to come into force next year– is set to have a profound impact on the sector in the coming decades and beyond.
Banks have been told that information such as transaction and loan repayment data does not belong to them, but their customers. Those who want to use that data to access better financial products or services will be able to do so in a safe and secure manner. Delivery will be via application programming interfaces (APIs), software that allows different computer systems to connect, which the UK banks are furiously building and testing.
The impact of open banking – which has also been proposed for Australia by a parliamentary committee – will help even the playing field for fintech start-ups and non-banks entering financial services and improve competition. It will also herald a new data economy; data will have a value and be used to provide better insights into pricing and boost new innovation, according to supporters of the new regulations.
Even though many aspects of the UK open banking regime are still being worked out – including determining where liability for data breaches lies and how to create trust for the new system among customers – banks are considering how they will morph into new roles including data custody and software publishing.
“I definitely think a new ecosystem will emerge,” says Saket Jasoria, head of digital strategy at Lloyds Bank Group. “The short-term impact will take a bit of time to settle down, but the long term will be quite significant, and in five to 10 years we will be in a new ecosystem.”
Bradley Rice, a financial services lawyer at Ashursts, says: “It might be three years, but certainly in five to to 10, the whole industry will change on its head.”
Australian lawmakers are watching UK developments closely. The second report on the big banks released last week by the House of Representatives economics committee called for customers’ transaction history, account balances, credit card usage and mortgage repayments to be made available to competitors via APIs by July next year.
“This data is critical to overcoming the problems of consumer inertia and opaque pricing that exist in the banking sector,” said the report.
“Enhancing access to publicly and privately held data has the potential to make a strong contribution to economic growth,” said the report of the committee chaired by Liberal MP David Coleman. “The cost of banking products is generally opaque, which increases switching costs for consumers and limits competition. Data sharing, however, can help to overcome these problems.” It called on the Australian Securities and Investments Commission to develop a “binding framework” using APIs and appropriate privacy safe guards.
Even if the timeline is overly ambitious, the committee’s recommendation has focused the Australian Bankers’ Association, which held a high-level session on open data earlier this month, while open banking featured prominently at the Australian Securities and Investments Commission annual forum in March.
Data as an asset
While it remains to be seen how federal Treasury will respond to the calls for open banking in Australia, in Britain customer data is about to become a new asset class.
“We are going to be moving into a data portable world and data will fundamentally become an asset – something of value,” says Henry Kuang, a member of the EY global fintech practice and member of the secretariat for the CMA’s open banking working group.
Ultimately, it will be up to customers to embrace the scheme and make it a success, but if it does take off, it will liberate a new set of data.
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