Open banking in a nutshell
In Australia and most other countries, it’s challenging for consumers and business owners to get their complete financial data and personal information from financial institutions and make it available to other companies. The barriers in accessing bank data and other information make it difficult and expensive to get new financial products and services or switch to competing ones that might be better.
With open banking, you will be able to have your data sent to financial institutions and other organisations. You won’t lose control of your data because you will decide to whom your data is sent. For example, if you were seeking a business loan, you could have your business banking transaction data sent to a potential lender who can offer you a more appropriate product.
The ability to share consumer data through open banking will have a big impact as well. For example, by agreeing to share their data, consumers can find the best products when seeking financial products – from credit cards to home loans. In addition to helping you choose the best products and services for your needs, open banking will increase competition in financial services. Increased competition will spur innovation as more companies seek to attract customers with new and better products and services. For example, personal financial apps can be developed that gather spending data from various financial institutions, loyalty programs and payment platforms in order to provide helpful financial management and investment advice.
In Australia, making consumer and business data more accessible will decrease the power of major banks as it will give people the power to share this data with newer and smaller competitors.
When is open banking coming to Australia?
In May 2017, the Australian Government announced it would conduct a Review into Open Banking in Australia (known as the Farrel Review). The final report, released in February 2018, included recommendations concerning the regulatory framework, types of data, security and implementation. In May 2018, the government agreed to the recommendations of the report. Here’s the timeframe for rolling out an open data system:
1 July 2019 – the big four banks will make available credit and debit card, deposit and transaction account data for pilot testing under the proposed framework.
1 February 2020 – the big four banks will be required to make mortgage data available as part of the open banking framework.
1 July 2020 – this is the deadline for the big four banks to have all product data available under the open banking framework as recommended by the Farrell review.
Except for the big four banks, all other banks will have a 12-month delay on the timeframe outlined above.
What does open banking mean for small business?
Open banking will make it easier to for small businesses to seek new options when it comes to business banking and lending. Currently, if you have a small business and switch banks, you can’t take that data with you to the new bank. This means you can no longer use your transaction history with the previous bank to secure business financial products such as business loans. Currently, if you have a strong financial track record, you might be reluctant to switch banks and lose your transaction history. Open banking will change this. Making it easier to switch between financial products will force banks and other financial institution to be more competitive if they want to keep their customers, whether consumers or businesses. In this situation, it will be easier to get the best business loan for the circumstance and requirements.
Fintech Australia, which represents Australia’s growing fintech industry, listed the following benefits of open banking in its submission to the Review into Open Banking in Australia. These included:
- Improving choice, improving access to, and increasing competition in financial services in order to drive better financial outcomes and experiences for Australian customers and businesses.
- Improving the efficiency of the Australian economy by reducing manual transfer and analysis of data.
- Expediting the development and testing of new financial innovations in Australia.
- Ensuring the Australian financial services industry remains competitive with businesses, both traditional and new/emerging, from other global jurisdictions.
With so many benefits, open banking will create a brighter future for small business owners looking for new and better financial products and services.
For small-to-medium businesses seeking finance, unsecured online business loans are a growing part of the mix of options available.