Open Banking for Australia: hand over your data

The Federal Government announced in the 2017-18 Budget that it would introduce an "Open Banking" regime in Australia. Under Open Banking, banks will have to share product and customer data with customers and third parties, if the customer gives consent.

There is already plenty of sharing of bank data. Accounting software such as Xero takes bank feeds from accounts with the consent of customers. Other “scraping” services allow consumers to authorise access to their bank statements for credit assessments.

These services require customers to give their login credentials to third parties. This practice could breach the conditions of their online banking. Yet these methods of accessing a customer’s bank data are now widely used.

Under the Privacy Act, individuals have the right to access personal information held about them by organisations. While the law gives this right, it doesn’t provide a neat technical solution in the form of common technical standards for access.

Macquarie Bank is already moving to Open Banking, without the need for legislation.  It recently announced an API-driven open banking platform that will let customers connect their Macquarie Bank data with third-party providers without having to give their banking logins.

So why is the Government going to impose an Open Banking regime on the finance industry?

The reason is competition.

The Treasurer says “Our moves to introduce an Open Banking regime in Australia are part of our comprehensive reforms to financial services, driven to empower consumers. The Turnbull Government is committed to opening the door to new banking entrants and new financial products and services. This will mean more choice and cheaper and better options for consumers.”

Whether Open Banking will in fact lead to “more choice” and “cheaper and better options for consumers” is not known, but the Government seems sure that this will be the outcome.

Independent review

The Treasurer established an independent review of Open Banking chaired by Mr Scott Farrell which is due to report by the end of 2017.The review will make recommendations on the most appropriate model for the operation of Open Banking, a regulatory framework and an implementation framework (including roadmap and timeframe).A brief issues paper was published by the review on 9 August. It summarises the issues as follows:

• What data should be shared, and between whom?

• How should data be shared?

• How to ensure shared data is kept secure and privacy is respected?

• What regulatory framework is needed to give effect to and administer the regime?

• Implementation – timeline, roadmap, costs.

Over 30 submissions have been made to the review.

Consumer group concerns

While the Treasurer is talking up the benefits of Open Banking for consumers, some key consumer groups do not share the optimism.

A joint submission on the Open Banking issues paper from the Consumer Action Law Centre, the Financial Rights Legal Centre and Financial Counselling Australia argues that too much competition can be a bad thing. They say that a market with a large number of choices can be “just as inefficient as a market with few choices if consumers do not understand what is on offer, cannot easily compare different offers, or are not rewarded making the effort to search, compare and switch.”

The submission identifies some other concerns about banking data becoming more accessible and mobile:

• Access to banking data by predatory businesses like debt management firms will harm consumers rather than help them.

• Increased availability of customer financial data could lead to “profiling for profit” where consumers struggling with debt are targeted for credit offers.

• “Free” business models could lead to the increased sale of transactional data or commission-based selling as a way to profit from the data. The consumer groups say that these practices “will eventually erode community trust and confidence in the Open Banking regime.”

• Pricing for risk could lead to vulnerable consumers being unfairly charged more for credit.

What the banks think

The Australian Bankers’ Association (ABA) in its submission into the review of Open Banking accepts that Open Banking is coming but argues that it should place customers’ interests at the centre, not technology.

To provide incentives for all market players to participate in Open Banking, the ABA says that consideration should be given for a model that permits reasonable charges to be levied for the data accessed.

The ABA believes that involvement in Open Banking will occur naturally if the system is based on a principle of reciprocity (i.e. participants who seek access to data must also be required to provide data when requested).It proposes accreditation requirements for participants in Open Banking, so that they would have to meet adequate security and organisational capability standards.

According to the ABA, the best implementation model would be through the use of industry working groups to address and devise industry solutions on data and technical standards.

Making it happen

After the independent review maps out a way forward, there will be a significant amount of work to be done in developing the standards that will apply to Open Banking in Australia. It is unlikely the final implementation will begin until 2019 at the earliest.

Then we will see if we get the promised competition payoff.

Kathleen Harris and Patrick Dwyer

Legal Directors