‘A whimper rather than a bang’: Why open banking has had a slow start
Over the coming months, ANZ Bank and the Commonwealth Bank will be putting the final touches on much-hyped, fully automated digital home loans.
According to banks, these products will allow some customers to get a mortgage approved in as few as 10 minutes. They are probably the most noteworthy outcome for consumers to emerge so far from a system called open banking, also known as the “consumer data right”.
But while many in the banking and fintech world still have high hopes for open banking, the regime has been much slower to take off since its mid-2020 launch than hoped.
Policy-makers had grand ambitions when they started laying the plans for this data-sharing regime half a decade ago. Open banking was billed as a way of making it easier to switch banks, because it would allow consumers to quickly and securely share their financial data with rival lenders, rather than chasing down statements and other documents.
The idea is that if consumers are more likely to switch banks, it can drive competition and lower prices – similarly to 2001 changes that allowed people to switch mobile phone providers while keeping their phone number.
Banking is the first cab off the rank: the government plans to allow data-sharing across the economy, saying it could help people save money in sectors such as energy, telecommunications, or insurance.
But so far, it’s been a slow grind.
The chief executive of fintech Frollo, Tony Thrassis, describes the take-up of the consumer data right as “completely underwhelming.” He says this as an inevitable result of the gradual planned rollout across sectors, which stared with major banks, before moving to smaller rivals, and then in late 2022, energy companies.
Thrassis says open banking could still have a big impact on the industry, but it is being held back by the fact that many consumers don’t even know it exists.
“It’s extremely significant. It’s as big as NBN, or it’s as big as mobile number portability, it’s a huge undertaking, and it needs to be planned,” he says.
“Unfortunately, the flipside of when you introduce something like that is it takes time, and it takes time for organisations to make use of it, it takes times for consumers to even become aware of it, and they’re not aware of it.”
Mathew Tyrrell, APAC commercial director at fintech Codat, says he believes the launch of open banking landed “with a whimper rather than a bang”. He worries last year’s cyberattacks on Optus and Medibank will further slow the uptake of open banking.
“In light of the recent Optus and Medibank breaches, data security is now front of mind for all Australians, making them more cautious than ever about who they share their data with,” he says. “Unfortunately, this reluctance now threatens to slow the benefits we can unlock as a nation with open banking.”
Why has open banking been so slow to get off the ground?
Financial Services Minister Stephen Jones firmly backs the consumer data right system and the government’s move to expand the regime into other sectors, including energy. But he agrees customer take-up has been slow.
“I think the idea of extending it beyond the banking sector into other areas of the economy is absolutely the right policy direction as well, but I think the take-up and provision of new products and services has been very slow,” Jones says in an interview.
Jones says reasons for the slow progress include labour shortages in the tech sector and the fact the rollout occurred during the hectic period of the COVID-19 pandemic.
Fintechs, meanwhile, point to complex regulation and differences in how Australia has rolled out the regime, compared to the UK.
The CEO of the Australian arm of UK fintech Revolut, Matt Baxby, says open banking can ultimately give consumers a more “seamless” experience, including the ability to see all their accounts in one place, and to apply for loans more easily.
“We’re very positive on the opportunity that open banking presents,” he says. “We’re about finding ways to put customers in charge of their money, and a lot of the benefits that we’ve seen in our UK experience will eventually find their way into the Australian market.”
However, Baxby says the key difference between Australia and the UK’s open banking is something called “payment initiation”. Essentially, UK customers can allow a third party to not only receive data, but also take “action” on their behalf, such as opening or closing an account. Experts say this has meant the UK’s regime has more use cases for customers, and it’s therefore driven more switching.
“I think that’s probably been one of the key drivers for why adoption in Australia’s maybe been a little bit slower than what we’ve seen in the UK,” Baxby says.
The government is looking to address this: Jones says it introduced legislation late last year to allow for “action initiation.”
“That’s a game changer,” Jones says.
“It’s one thing to be able to say to your bank: I want you to provide my customer data to this bank that I’m switching to.”
“It’s another thing to be able to say to a service provider: I want you to pay all of these bills, across all of these different banks that I have, on these conditions and these dates. Or: I want you to continually monitor my electricity service provision and I want you to get the best deals in the market on a quartley or a six-monthly basis and switch my accounts accordingly.”
When such products are actually launched will depend on the industry, but Jones says fintechs tell him they are enthusiastic.
Fintechs share Jones’ optimism that the consumer data right could still drive major changes, but they say it’s likely to be a slow journey.
Digital mortgages – facilitated by open banking – are a case in point. While some believe digital home loans could be a major disruptive force, initially they will only be available to simpler loans, and will probably grab a small share of the overall market.
Chief executive of CBA’s digital mortgage unit Unloan, Daniel Oertli, says the bank hopes to roll out open-banking supported applications in early 2023. “You do your application, there’s about 30 seconds of processing time and then there’s a decision. Either it will be an instantly approved decision, or we refer it to a team member.”
Oertli says for simple application, the process doesn’t require paper. Borrowers who are self-employed or who have investment income may still require manual assessments. Will it encourage switching? Oertli thinks so.
“One of the main reasons customers don’t switch, despite having access to a better offer, is not wanting to go through the process,” he says.
Damir Cuca, chief executive of Basiq, is also optimistic about the long-term potential of open banking, arguing Australia has made “remarkable” progress in the field. “What we need to acknowledge is that it’s a very ambitious and new infrastructure that we’re laying out within the Australian economy,” Cuca says.
Thrassis believes that eventually, open banking will lead to more switching by customers, and that changing mortgages could ultimately become more like changing mobile phone providers. However, it will take time.
“I do see that this is the beginning. It might take five years, it might take ten years, but it will happen once you put the framework in place and the ecosystem in place.”
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