Open banking

Article

Open banking

A seismic shift

Open banking is about to unleash what has the potential to be a seismic shift in retail banking driven by regulatory changes, changing consumer preferences, and technology-enabled innovation. The evolution from a closed model, where each financial institution retained and controlled the information it collected about its customers, to an open model, has the potential to change competition in the sector and see the creation of new products and services based on that data.

The interim report on implementation of an open banking regime in Australia was released in February 2018. The review, undertaken by Mr Scott Farrell, a partner with King & Wood Malleson (the Farrell Review), provides recommendations on the design of the operating model and regulatory framework for the introduction of open banking in Australia.

On 9 May the Government accepted the recommendations of the Farrell Review and outlined a phased implementation timetable.

By 1 July 2019 all major banks will be required to make available to customers data on credit and debit card, deposit and transaction accounts.

By 1 February 2020 all major banks will be required to make available to customers data on mortgage accounts.

By 1 July 2020 major banks will need to make available data on all the products recommended by the Farrell Review (in Table 3.1 on page 37).

All remaining banks will be required to implement Open Banking 12 months after the timeline for the major banks.

In addition a component of open banking, Comprehensive Credit Reporting (CCR), will be introduced on 1 July 2018.

For immediate focus

The 2018/2019 Federal Budget committed $44.6 million over four years to establish a Consumer Data Right (CDR). The CDR will be overseen by three government agencies. The Australian Competition and Consumer Commission (ACCC) will determine the sectors that will be subject to the CDR and will develop rules regarding its use and the required data standards. The Australian Information Commissioner will examine the privacy impacts, while the CSIRO will be the data standards setter.

Over the coming months the Treasury will be consulting on draft legislation, the ACCC will be consulting on draft rules, and CSIRO’s Data61 will be consulting on technical standards.

As open banking enables personal information to be shared between organisations, data privacy will become critical. The Farrell Review covers critical issues around data security, privacy and fairness. The growth of third parties in the provision of financial services is likely to impact financial crime risk management and reporting.

There will be opportunities to adopt strategic pricing, including risk-based pricing, as financial institutions more accurately model risk. However they will also need to thoughtfully consider the way in which pricing will take into account considerations around conduct and fairness.

The ability to effectively use customer data will be paramount. Banks will invest in artificial Intelligence, analytics, automation and algorithms and related capabilities to add value to consumers, and in application programing interfaces (APIs), to connect with a banking ecosystem.

Explore our open banking series below to help you prepare for the changes.

Open Banking: Privacy at the epicentre

By giving customers control over their banking data, and the ability to share it with third parties, open banking will transform banking in Australia. It has also generated a renewed focus on privacy. Open banking will result in more entities accessing banking data, and banking data being transferred more often – increasing the possibility that data privacy is compromised.

Open Banking: What does it mean for financial crime?

The evolution of an open banking model, where customers rather than each financial institution control and share their data, will potentially have a profound effect on financial crime risk management.

Open Banking: Why APIs matter

For years, discussions around APIs were confined to the developer community, but today they are the stuff of backyard BBQs, millennial games nights as well as blue chip boardrooms. The imminent arrival of open banking and the spread of data-sharing continue to amplify the importance of the ‘API Economy’.

Open Banking: Conduct: it’s everyone’s responsibility

Open Banking is an ‘opportunity to re-shape how banks will deliver value in their financial products’. It promises substantial benefits in competition, innovation and productivity. Organisations need to prepare to address potential conduct considerations of fairness, transparency, vulnerability and suitability.

Open Banking: Potential pricing implications

Information about a customer’s financial position and transactions has been a key source of competitive advantage for established financial institutions. The move to open banking will result in the ownership of this customer information moving from financial institutions to customers, enabling them to share their transaction and other data with third parties.

Open Banking: Comprehensive Credit Reporting (CCR) (updated July 2018)

The end of September 2018 will see the four major banks provide the first component of Comprehensive Credit Reporting (CCR), effectively a component of Australia’s emerging open banking regime. CCR, otherwise known as ‘positive reporting’, enhances the credit information provided by lenders and credit reporting bodies. This has the potential to enhance differentiation of customers based on risk.

Open Banking: A seismic shift

Open banking is ‘one of the biggest changes in financial services in a generation’, according to American Banker magazine. The changes enabled by open banking and comprehensive credit reporting will have a significant impact for customers, data privacy and financial crime, strategy and pricing, conduct and fairness, artificial intelligence, and application programming interfaces (APIs). Financial institutions that fail to align their actions in all of these areas ‘risk getting left in the dust.’

Read more insights from our Deloitte experts around the world:

Deloitte has a range of services to help organisations get up and running with open banking. We can assist organisation’s assess the impact of comprehensive credit reporting and evaluate strategic pricing options. We help them navigate the challenges of conduct, privacy and financial crime compliance. We help them develop their data strategy and amplify their actions on artificial intelligence, analytics, automation and algorithms. And as organisations prepare for the exploding API economy we can help them develop the vision for an organisation’s open banking strategy, the development of propositions based on customer research and testing, integration and developing of API platform scaffolding including platform and security architecture, and design and build of APIs to support open banking delivery.

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