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Open Banking is here: what this means for you

- July 1, 2020 4 MIN READ

In Australia, open banking has been a term bounced around in the financial sector since 2017. Only in the last two years we have seen movement, and the Big Four banks (CommBank, NAB, Westpac and ANZ) have begun beta testing since legislation passed in 2019, says Erich Gerber, Senior Vice President, APJ and EMEA, TIBCO Software

Despite big discussions in 2019, three in five Australians still state that they have never heard of open banking, let alone understand how this policy will impact their financial dealings. Yet, over half believe that increased personalisation, a huge benefit of open banking, would improve their financial health.

So, what exactly is open banking?

Open banking is a government- and regulator-led scheme, which states that banks share consumer data in a machine-readable format when customers request it, allowing them to access and safely transfer their banking data to trusted parties.

Breaking this down further, it simply means as a consumer you have more choices, access to better services and improved customer service through frictionless commerce. For example, with open banking, you will be able to use your preferred provider, which could be Amazon, Paypal or even Facebook, to send money or gifts securely to family and friends, with a simple click or swipe. You no longer need to log into your bank to enter payee details or fear keying in the wrong account numbers. You can simply click ‘send $50 to Tom’ or ask Siri to do it on your behalf – it is that simple and seamless.

Disrupting Traditional Banking

Traditionally, banking institutions were the exclusive providers in the financial sector. They are, to this day, sole guardians of customer financial data with complete control over it. Competition amongst banks was largely based on fees and interest rather than convenience or personalisation for customers.

But all this is about to change. In today’s world, data is currency and smaller, more agile fintech companies are quickly realising the mountain of opportunity that lies in what these banks exclusively possess. Traditional banks are increasingly finding themselves fighting for survival as fintech startups accurately identify and ease the pain points of both current and potential customers.

All in all, this means that the customer benefits.

Now that the Big Four are required to share your financial data, including information on credit and debit cards, deposits, and transactions, this is a significant step towards an open data sharing ecosystem that champions innovation. Not only will it foster creativity that will lead to more innovative solutions and better customer experience, but you, as a customer, will benefit from an easier, fairer, and more sustainable financial industry.

Three key benefits include:

  • Enhanced security and transparency: Security is a critical aspect of the financial services industry (FSI). With open banking, there will be greater data protection measures put in place. These will go beyond the difficulty of your password, focusing on complex encryption methods that will secure confidential data and ensure that privacy is never compromised.
  • Centralisation of services: With all your information in one place, FSI providers can break down silos and streamline all processes under a single administration for improved customer experience. It will become easier for anyone to get a complete view of their financial status, which will assist in planning and budgeting. For instance, private renters might be able to use their history of timely rent payments in place of an actual credit history to help them get better deals. Another example is when new startups that provide small everyday loans to the unbanked may use their history of timely rent payments as an equivalent to their actual credit history to help them with their needs.
  • Diversifying with partnerships: With new digital banking platforms aimed at building mutually beneficial partnerships, customers will have access to partner businesses such as insurance or real estate, which are typically associated with credit applications. Open banking allows financial providers to recommend suitable deals that are personalised to your individual appetite or preference.

The Promise and Power of Choice

Historically, the lack of consumer data has been the barrier to entry in the FSI space. But with new fintech players responding to what consumers need and want in an evolving digital landscape, traditional banks are being forced out of their complacent slumber as open banking levels the playing field.

This open flow of information will give the power back to the customer, who is guaranteed with the choice on how to bank. Australia is likely to remain on track for a nationwide launch on 1 July 2020 and, with this shift, consumers can expect better customer outcomes due to new business intelligence made available by access to data.

One successful use case is SIBS, a leading payments solution payment provider based in Portugal. They developed an open banking marketplace for the economy and have changed the way people use financial services. They have seen first-hand, the flexibility that open banking provides and can attest to how the interconnectivity helps both FSI and users alike.

Australia has the opportunity to do the same. Companies in the FSI space will need to relook and rethink how they leverage data insights in their core decision-making processes to drive customer loyalty.

Open banking is the future. Traditional FSIs need to be willing to be disruptive and team up with innovative solutions or risk being left behind. Fintech titans entering the banking space do not want to become banks, nor do they require banking licenses. They are unencumbered by conventional bureaucracy and they know what customers want. These are the winning qualities that are enabling new fintech entrants to hand the promise of choice back to consumers who are empowered to make informed personalised banking decisions.

The clarion call has been issued, either adapt and pivot or risk being left behind as open banking make way for others to win customers over with meaningful conversations backed by data and win over the lion share of the market.

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