Did you know that as of July 1, 2020, Australia’s big four banks opened to ‘open banking’? It’s true and good news for Australians, especially finance professionals looking to benefit from the initiative.
In this article, we find out what open banking is and the opportunities it can unlock.
Firstly, despite the name, open banking has nothing to do with banks’ opening hours. Open banking refers to customer banking data being ‘open’ for access by other companies and organisations - at a customer’s request and consent of course.
In other words, as we know, your bank stores all your banking data - transaction history, withdrawals and deposits, credit history, etc.
Open banking allows you to direct that data to other banks, financial institutions or authorised organisations when and if you want to.
Why? Tailored financial products, streamlined services and access to a larger suite of options with far less hassle.
In a nutshell, open banking = easy flow of your banking & financial data.
Imagine you want a car loan through a financial institution other than your bank, a pretty common situation. You may have found a better deal for example.
With open banking, you won’t need to go through your bank’s processes to access your account statements and other documentation to provide to your new car loan lender. Instead, you can simply allow the car loan lender access to it via open banking, saving time.
Lenders won’t need to request and wait for large amounts of specific information over and over.
Another example is personal financial management tools. Apps like Frollo and Pocketbook help users budget each pay cycle and keep track of expenses. Open banking allows apps like these to access your data (if you allow it to) so they can keep track of your spending habits.
The credit industry and businesses that provide financial services and products are set to benefit from open banking. Clients (and potential clients) will have access to streamlined processes, hassle-free quotes and a wider range of tailored services.
With open banking, people will be able to give access to lenders by permitting them to access what they need to provide an offer rather than manually gathering information that may be required. In other words, consumers will be far less limited or confined to their primary bank due to the flow of data to other organisations. This means finding the most competitive deal without having to provide information to separate lenders. You’d use one app with open banking.
As lenders and brokers gain access to consumer financial data via open banking, they have the ability to offer customised financial products. This will also allow for simplified loan applications that expedite time and reduce administration costs.
Many see open banking as the next step in the financial progress. As more and more services become not only an online option but primarily online, the need to allow data to flow quickly and smoothly between organisations increases.
Identifying opportunities for finance becomes easier and far more accurate with open banking. The access to a long history of spending habits allows brokers to pinpoint whether a client may qualify for a specific lender or product. For example, they may have previously paid off a loan or benefit from debt consolidation.
With the increased amount of data flowing, businesses are able to offer a wider range of specific and tailored financial products. Simply, with access to client data, businesses can offer solutions immediately rather than requesting and waiting for access to data.
Consumers will have to provide permission to organisations requesting data. They’ll also go through an ID check and confirmation process.
Only ‘accredited’ organisations - The Australian Competition and Consumer Commission (ACCC) is responsible for accreditation. Organisations must apply for open banking and gain access to an ACCC approved trusted data environment. As most businesses become accredited, consumers benefit from more innovative services.
Now. From July 2020 to July 2021, banks and financial institutions are initiating data sharing access for customers. By July 2021, every bank in Australia needs to provide access to open banking.
Yes. Open banking is a government initiative and only accredited organisations can use and offer open banking. They are required by law to adhere to strict security standards.