When we saw that 0.3% figure, we figured that the results of the consumer data right were bad. But the more of the ABA’s report we read, the more it became clear that the program has actually been detrimental to certain banks – which is the exact opposite of what it set out to do.
The consumer data right was supposed to increase healthy market competition, but instead, mid-tier and regional banks have been incurring disproportionately higher compliance costs compared to the Big Four (National Australia Bank, Westpac, Commonwealth Bank and Australia and New Zealand Banking Group). High compliance costs are forcing difficult investment trade-offs – particularly for smaller banks – leading to vital technology and customer projects being deprioritized. These include digital banking experiences, scam detection and prevention.
“While we support the intent of the CDR to increase competition, it has actually made it more difficult for smaller banks to compete by tying up resources with little to no tangible return,” Customer Owned Banking Association (COBA) CEO Michael Lawrence said in the report.
Overall, the CDR rollout has required substantial investment from both government and industry participants and continues to incur significant ongoing costs. The banking industry alone is estimated to have spent about A$1.5 billion on it since 2018.
Given how much has been invested in Australia’s open banking initiative, it would be a shame if it failed to accomplish any of the things it set out to do. It might be worth Australian banks and regulators taking some time to study more successful open banking initiatives in other advanced economies. While both India and Brazil have seen better uptake of their respective initiatives than Australia has (61.7% and 19.6% respectively), those countries both have high unmet consumer banking needs – which is not the case in Australia.
The UK’s program has not exactly been a game-changer, but with 12.7% adoption, it is doing better than Australia’s. Like Australia’s, that program is driven by regulators.
By comparison, Singapore has been much more successful, with 45% of the population seeing adoption as essential and 70% indicating interest. However, the Singaporean open banking regime has been market driven, with government support – an important distinction with Australia’s consumer data right. As it looks to improve upon the results of its open banking experimentation, Australia could consider whether it should create API playbooks for voluntary participant adoption as the city-state has, and whether it makes sense to build an open banking ecosystem like the SGFindex.