When the House of Representatives Standing Committee on Economics issued a report on the four major banks in November 2016, it sent a clear message in favour of open data.In fact, the Committee went so far as to recommend a change in regulation: By June 2018, banks must give competitors access to their customer data.
Now, this position has been confirmed in the Federal Budget 2017-18, handed down on 9 May 2017. In it, Treasury announced that the Government will introduce an open banking regime, under which customers will have greater access to and control over their banking data.
The announcement follows the 8 May 2017 release of the Productivity Commission’s final report on Data Availability and Use, which recommends reforms to improve access to, and use of, data in Australia, as well as news on the same date that a Productivity Commission Inquiry into competition in Australia’s financial system will commence on 1 July 2017.
While you may already be aware of the move to open data, have you considered all of the ways in which it will impact your business?
What is open data?
In the context of the banking industry, ‘open data’ or ‘open banking’ refers to the ability of consumers to allow their personal transaction data held by their financial institution to be accessed by other financial institutions.
It is intended that allowing open access to such data will assist the broader policy objective of improving competition in the banking sector, by offering consumers more choice, lower prices, and the ability to switch banks more easily.
What impact will open data have?
Make no mistake, this change will have a wide range of implications for the banking industry. You don’t need to look any further than to the United Kingdom, where such reforms are already being rolled out, to see that.
Broadly speaking, those implications will be felt in three main areas:
When it comes to privacy, there are numerous questions that you need to ask yourself that go beyond whether or not your customers will be comfortable with their data being shared. These include:
- How will you protect your customers’ privacy in a world where information about the products they hold, their transactions, and the fees you’re charging them can be shared among institutions? And how will you accomplish this while still complying with the Privacy Act?
- Will you need to obtain consent before such sharing occurs?
- If you’re obtaining data from other banks, how will you comply with Australian Privacy Principle (APP) 5, which requires you to notify individuals of certain matters upon collecting their personal information?
- Will there be restrictions on the use of data obtained in this way for direct marketing purposes?
By definition, open data will mean sharing more information than ever before, most likely through application programming interfaces (APIs). Ensuring that your customers’ data remains secure in the process will be of the utmost importance. And that responsibility will apply not just when transferring customer data, but also while storing it. For smaller institutions and new entrants to the market, such as fintechs, part of the challenge will lie in gaining customers’ trust in order to win them away from the larger institutions.
In the event of a data breach, there is also the question of how liability would be apportioned between institutions.
The House of Representatives Standing Committee on Economics has recommended the sharing of data take place under a binding framework. Whether such a framework is ultimately implemented, and if so, what it might look like, remain to be seen.
To facilitate the sharing of new types of data at scale, you’ll need to build and adopt new technology. While that will require a significant investment of time and resources for all, making the upgrades required in the timeframes prescribed will be particularly onerous for smaller institutions.
The way forward
Open data was once a question of if, rather than when. Now we know that it is coming, the question is how soon?
Treasury has stated that the Government will commission an independent review, to report by the end of 2017, to recommend the best approach to implement the open banking regime. The Treasurer’s Budget speech indicated that the regime would be introduced in 2018, in line with the recommendation of the House of Representatives Standing Committee on Economics. It is difficult to imagine, however, that institutions would be able to make the requisite changes quickly, given the investment in infrastructure that will be required.