It’s been a big month for open banking.You may have heard there have been big changes sweeping through Europe’s old financial institutions. New regulations from the EU have given customers access to their own financial data for the first time and added much needed transparency to the banking sector in those countries. Closer to home, the Australian government is due to release the findings of a review into open banking at some point this year ahead of proposed legislative changes that could revolutionise financial services here as well.
We’ve touched on open banking before in a previous blog post, but let’s quickly recap what it means before we dive into the changes that are taking place around the world and here in Australia.
Open banking means that the ownership of an individual’s personal financial data passes from their financial institution to the consumer themselves.
So what the bloody hell is ‘open banking’ again?
Essentially open banking and the legislation driving it around the world means that the ownership of an individual’s personal financial data passes from their financial institution to the consumer themselves. So you own it, your bank doesn’t!
‘Financial data about how you spend your money, how often you are overdrawn and other details are currently held by your bank.
Under the new rules, the ownership of this data will essentially be transferred to the consumer, meaning that account holders will be able to give companies, other than their own bank, permission to access their details. Underlying this new regulation, which will spread across Europe this month, are EU rules that mean financial institutions must let customers share their data easily and securely.’
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You can authorise third parties to access this data and they can then offer appropriately tailored solutions from switching bank accounts to changing your insurance or energy providers
It’s my data, I want it! Now, what can I do with it?
The data that your bank has about you will be available through an API (application programming interface). You can authorise third parties to access this data and they can then offer appropriately tailored solutions across a range of financial services and applications. This could include everything from switching bank accounts or managing your money through a personal finance app to changing your insurance or energy providers.
‘In theory, people will be able to use the services of more banks and approved financial bodies in a much more straightforward manner.
This could be opening your banking app and being able to see a list of all of your accounts, no matter the bank you are with – a process called “account aggregation”.
It could also mean giving a company that analyses financial details your account data in order to offer budgeting advice, or showing alternative deals on the market – in essence, a comparison system but for financial products.’
It’s a quiet revolution though….92% of people had not even heard of open banking
What have I missed around the world then?
The legislation just came into force in the UK. It’s a quiet revolution though. A survey from consumer group Which? found that 92% of people had not even heard of open banking and changes are likely to be gradual as financial services providers develop products designed to make the most of the it. From January 13th, 4 of the UK’s 9 largest banks began open banking with most of the rest due to follow in March. These banks are now required to share customers’ data with third parties who are registered on an open banking directory.
Open banking in the UK is part of a wider EU legislation called as the second Payment Services Directive, or PSD2. As Wired points out: ‘Open Banking is the UK version of PSD2. The difference is that whereas PSD2 requires banks to open up their data to third parties, Open Banking dictates that they do so in a standard format.’
“Australians change their spouse more frequently than their bank. We tend, on average, to spend about 16 years with a bank, but only nine with a spouse.” – ABC News
So what about open banking in Australia then? (I have FOMO!)
Once again we’re playing catch-up in Australia, but changes are likely to happen here as well. The Australian government commissioned a review of open banking last year. The report was due to be completed by the end of 2017, but the government is yet to reveal its findings. As the ABC reports, this could have huge consequences for a market that is essentially static: ‘Australians change their spouse more frequently than their bank. We tend, on average, to spend about 16 years with a bank, but only nine with a spouse.’
Not only will it benefit consumers who will have access to better, more tailored products, plus start-ups who can create innovative new solutions it should help the incumbent banks
Sounds great. But what will our all powerful ‘big 4’ make of it?
Access to the data that has for so long been a closely guarded secret of just a few financial institutions should in the long run benefit everyone. Not only will it benefit consumers who will have access to better, more tailored products and services as well as start-ups who can create innovative new solutions, as ABC points out, it should help the incumbent banks:
“It is highly unlikely that our Big Four banks, comfortable with their market dominance in our strong economy, would ever have learned to compete well in this new world of algorithmically mediated data. Our Government’s policy change will force them to adapt, and it is only by learning to swim in this new sea that they will be able to compete long term in this new world.
Open banking is ushering a new era defined by greater transparency and the use of exciting new technology
This has got Xinja written all over it!
We’re incredibly excited by these changes, which can only benefit customers in the long run. We’ll be setting up APIs, so customers can access their data whenever they want. We’re also planning over the next couple of years to create a platform in which our Xinjas can plug in products and services from third parties and access them through our app. We believe that open banking is just one of a number of changes (including the upcoming banking royal commission) which are ushering in a new era of banking defined by greater transparency and the use of exciting new technology leading to a better banking experience for all Australians.