Open banking: Beyond Data Sharing
In this paper, we take a view on what ‘Open Data’ means for different financial institutions and what approach they can take to position it as their differentiator.
The Open Banking deadline is nearing for Data Holders, the major banks have already complied with product reference data, whereas non-major ADIs including non-major banks, building societies and credit unions, are well set to comply with these requirements by Oct 1st, 2020. While the compliance timelines for disclosure to accredited data recipients is still a few quarters away (phase-1 for major banks is Oct 2020 and for non-major banks/ADIs/ building society/credit unions is Feb 2021), the financial institutions have also started to define their strategy around being a Data Recipient. We are seeing a varied set of approaches to the Open Banking Consumer Data Right (CDR) compliance requirements. While the smaller financial institutions have primarily focused on compliance aspects, the mid-large tier organisations have taken a strategic approach to prepare themselves for a new world, where the customer and banking data can be potentially accessible to all financial institutions based on customer consent.
While the immediate focus of CDR has been product, banking and consumer data from Financial Institutions, it is expected to be extended to other industries such as utilities. Additionally, the Australian Competition and Consumer Commission (ACCC) is also contemplating ‘write access’, which can open up transaction processing by Data Recipients post receiving customer consent. The list of financial products, currently in scope of Open Banking regime, are listed here:
|Data Sharing with accredited Data Recipients*|
(Major Banks: Oct 2020
Non-major: Feb 2021)
(Major Banks: Feb 2021
Non-major: Jul 2021)
(Major Banks: Jul 2021
Non-major: Feb 2022)
|Savings account||Home loan||Business finance|
|Call account||Mortgage offset account||Loan for an investment|
|Term deposit||Personal loan||Line of credit (personal)|
|Current account||Line of credit (business)|
|Cheque account||Overdraft (personal)|
|Debit card account||Overdraft (business)|
|Transaction account||Asset finance (including leases)|
|Personal basic account||Cash management account|
|GST or Tax account||Farm management account|
|Personal credit / charge card account||Pensioner deeming account|
|Business credit / charge account|
*Timelines as per ACCC and may change
Operating in an environment in which open access to banking product data is permitted can benefit customers with an enhanced digital experience, by providing the best value for the products they are subscribing through their financial institution. Financial Institutions can potentially look at a host of opportunities in the Open Banking regime, such as:
Just sharing data with other Financial Institutions in a Data Holder model may not be an effective strategy for any Financial Institution. It poses serious risk to the very business they are in given the customer can switch products based on the services and best value they may get from other institutions. Digital savvy Millennials and Gen Z are much more open to such switching (refer attached data from Deloitte Report: Open banking: switch or stick? Insights into customer switching behaviour and trust, October 2019) given that products can be applied for and approved digitally within minutes. Hence, taking no action is an immediate business risk.
A range of operating model / solution approach are being adopted by Financial Institutions to become ready for the Open Banking world. They are looking at a mix of approaches such as building in-house capabilities, partnering with Fintechs and other vendors, investing in early start-ups and Fintechs, and partnering with technology companies.
Building Futuristic Architecture
Few of the Financial Institutions have been redefining their existing Digital Banking architecture and looking at various mechanisms such as building Data Lakes, identifying performance bottlenecks and bringing in concepts around the speed layer. The end goal is to be ready to have this data accessible on demand through APIs and ease of applying Analytics on top of those to get meaningful consumer insights. While this approach is good to be in control of customer experience through internal capabilities, the challenges lie in terms of ongoing maintenance and improvements of those capabilities as well as being agile to the changing customer and regulatory needs.
Partnering with Fintechs
Banks like NAB have invested in Fintechs like Basiq, where they are using the specific APIs and analytics offering provided by the Fintech to provide value add services to their clients. In Europe, there are examples around banks like BBVA partnering with multiple Fintechs to solve specific business problems. This can be a good model for Tier-2 banks, Building Societies, and Credit Unions to remain competitive in an Open Banking world.
Separate venture to continue innovation
Some of the Financial Institutions have created separate ventures or platforms to continue innovating and be ready for the Open Banking world. CBA has launched X15 Ventures aiming to get five Fintech businesses up and running over the course of this year alone. They have partnered with Microsoft to drive this venture. The new incubator has hit the ground running, having already snapped up two startups to participate. The first, Home-In, is an online service designed to simplify residential real estate transactions. The second is a free of cost application that generates analytical business insights for businesses in Australia.
We have also got examples of Digital Banks such as Virgin Money from BOQ, Up Bank from Bendigo and Adelaide Bank, UBank from NAB. These subsidiary brands can be a good testing ground for new services and product offerings in an Open Banking digital world where the learnings and capabilities can be extended to parent banks.
As the Covid-19 pandemic has highlighted, digital enablement is key for Financial Institutions if they want to retain their existing customer base while looking at growing market share. With Open Banking coming into play, they need to define their business and technology strategy around how to remain relevant in this competitive market. Digital transformation is the first step towards preparing for the Open Banking regime. On top of that, they need to define which strategy they want to adopt – invest in inhouse systems transformation, or strategically partner with Fintech providers that can shorten time to market. The decision made at this stage will either define the journey towards success or the path towards oblivion.
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