Australia enters open banking era

Written by Kapronasia || July 09 2020

Australia launched its open banking regime on July 1, ushering in an era of increased competition and customer choice. The regime allows a customer of any of Australia's Big Four banks - National Australia Bank, Commonwealth Bank, Australia and New Zealand Banking Group and Westpac - to ask that their account and card data be sent to a third party accredited by the Australian Competition and Consumer Commission. In November, mortgages and personal loan data will be introduced, while smaller banks will join in 2021.

In theory, open banking could act as a catalyst for the personalization of financial services. With more competition from third-party providers, traditional banks might have to develop products and services better targeted to specific customer segments. They may even need to move towards an ecosystem business model. If they don't, they could struggle to retain clients who would prefer to mix and match a variety of banking products that they can shop for among different product aggregators.

For anyone frustrated with the rigidity of traditional banking, Australia's open banking regime could be a game changer. However, we won't be surprised if Australians don't jump at this opportunity just yet. Consumers and small businesses are not necessarily aware of open banking, and even if they are, they can be forgiven for being distracted by the coronavirus pandemic, which is delivering Australia its first recession since 1991. Additionally, just two data recipients have been accredited so far. More will join the regime over the next few months.

Regional Australia Bank was the first company to be accredited as a data recipient. Compared to the big four, it is a small player, with 80,000 customers and AU$2.3 billion on its loan books. Regional Australia Bank plans to use open banking to simplify its loan application process and more effectively evaluate borrower risk.

"By having instant access to richer financial data, we can automate our affordability assessment, further enhancing responsible lending," Rob Hale, chief digital officer of Regional Australia Bank, told The Australian Financial Review.

For fintechs, open banking could be just what the doctor ordered. The big four together hold an astonishing 95% of customer deposits in Australia. Before the launch of open banking, fintechs couldn't access that data. Now they can - as long as customers want to share it with them. That means the fintechs can reach a much larger potential market.

Before the pandemic, Australia's neobanks had been off to a fast start in 2020. The virus has stalled some of that momentum, both in terms of fundraising ability and customer adoption. Three of the most prominent Australian neobanks, Xinja, 86 400 and Volt, are still in the red and will need time to reach the profitability milestone. In Volt's case, the pandemic has forced the company to "reschedule" a AU$50 million round of fundraising, hold off on launching lending products and delay its sharemarket listing until 2021.