There’s a big change coming. Consumer Data Right is about to hit the banking industry in the form of ‘Open Banking’.
From 1 July, the Big Four banks – Commonwealth Bank, NAB, ANZ and Westpac – will be required to allow customers to access their own data and enable the sharing of this data to a third party. This means that at the touch of a button, customers of the Big Four will be able to share their transaction history, credit card data, spending and deposit history with whomever they choose. From February next year, these banks will need to enable the same liberties for mortgage data as well.
According to Jamie Leach, the founder of peak body Open Data Australia, “[the technology will be] a game changer. The potential for people to move between brands, or … have products [across] multiple brands and still be able to track that through a single app, is real and [is] happening right now,” she told the ABC last month.
There has always been a significant amount of inertia when it comes to consumers changing banks or finance providers. It’s been said before that people are statistically more likely to change their spouse than change their bank. While bank loyalty itself seems to be decreasing, up until now switching banks has been just a bit difficult and time-consuming, which has a significant negative effect on motivation.
The open data technology will make switching banks much easier, effectively giving consumers more choice in terms of their provider. Of course, you don’t have to share your data – it’s not compulsory. However, if you do, the third party you share it with (such as brokers or other financial institutions), will be able to analyse this information and offer products tailored to your personal financial circumstances. For example, a lender will easily be able to see which credit card suits you right, based on how you want to pay it off and what features you need.
Overall, the new policy stands to be of huge benefit to consumers. There are understandable concerns around security and privacy issues, and as banks will have access to more revealing data in real-time, consumers – such as those wanting to borrow – won’t be able to hide anything. This will ultimately make it easier for some customers to get credit, but harder for others. Global credit rating agency Moodys said the already heightened competition between lenders will be intensified by the policy change and this could result in lower interest rates. It is certainly expected to result in a lot more movement of customers between banks.
Smartline Rockingham mortgage advisor Justin Smith is excited about the changes as he believes it will result in positive outcomes for borrowers, as well as making the mortgage application process quicker and more streamlined.
“Customer information will be available in a more timely, efficient, reliable and secure manner,” he says. “In the near future, once the borrower gives consent for their broker to use their information, we should expect to see the ability to auto-populate their loan application and a significant reduction in the amount of administration and paperwork that typically goes with a new loan.
“There are benefits for the consumer, too, in terms of the way the information is used. Brokers will have a more reliable and real-time picture of customer expense behaviour, which will allow them to more effectively advise their clients on the most suitable loan features and products. Lenders will also be able to more reliably determine if a certain loan is appropriate for a particular borrower, and this is obviously in the customers’ greatest interests.”
It’s not just the banking industry that’s changing data access. On 1 July, Consumer Data Right will also be implemented in the energy and telecommunications sectors, and it will then be rolled out nationally sector by sector. In the banking industry, smaller banks will also have to provide the same customer data, although not right away. It may well take a few years for the system to work as seamlessly as planned while all stakeholders get used to this new digital world; however, we expect open banking to be a very welcome change.
To know more about Open Banking, you can contact us at Smartline Rockingham and let’s discuss what does it mean for you as a home loan borrower.