What is open banking? Will it save you money?

What is open banking? Will it save you money? Should you trust this new system?

What is open banking? Will it save you money?

From July 2019, you’ll no doubt hear a lot more about open banking. But what is open banking? Will it save you money? Is open banking safe and secure? Let’s see if we can answer these questions.

What is open banking?
Open banking is a system that provides you with financial institutions’ data, allowing you to securely share your financial data with a range of financial institutions. This makes it easier for you to easily transfer funds between these institutions and find product offerings better suited to your financial needs. No more being locked into one banks’ products or being automatically shoved into a financial institutions products.

According to Investopedia, open banking forces large, established banks to be more competitive with smaller and newer banks, ideally resulting in lower costs, better technology, and better customer service.

Open banking regulations allow you to better evaluate a bank’s quality of service and provides more transparency of fees and services to help you get the best possible customer experience.

“It gives customers more control as to who is providing services and to compare products and make sure they are happy with the choices they make. More availability of information will help drive efficiency and innovation,” said Westpac chief Brian Hartzer.  

Will open banking save me money?
Possibly. According to then Treasurer Scott Morrison, “Open banking will revolutionise the financial services sector, completely transforming the way Australians interact with the banking system by giving consumers the right to share their data with other banks, other institutions, and get themselves a better deal.

“Granting third-party access to your data will allow rival providers to offer competitive deals, products that are tailored to your needs, and enhanced services that meet the customers where they are at. Banks won’t be able to afford to take customers for granted and lock other competitors out.”

In a case of finding out something you already knew, the banking royal commission found that customers could get better deals by switching banks, only most customers were either too lazy or didn’t know enough about how to switch. Open banking could make it easier for you to switch banks. And while it won’t be as ‘easy as flicking a switch’ to switch “the major bank stronghold on data will make the process of switching between banks less painful and help overcome the ‘hassle factor’ that sees customers stay with their current bank even when there are better deals”, says Mr Morrison.

Currently, financial institutions of which you aren’t a ustomer have access to limited data that tells them what type of credit risk you are, which impacts the terms offered and limits the likelihood of you finding a better deal.

Open banking allows you to authorise any accredited entity to access more comprehensive data from your current bank, potentially increasing the likelihood that you’ll be offered a better deal on a credit card, mortgage or other loan.

Is it secure?
Open banking only allows businesses to access your data once you’ve authorised it. Only accredited entities who have satisfied stringent accreditation protocols can access this data.

The Australian Competition and Consumer Commission (ACCC) and Office of the Australian Information Commissioner (OAIC) sets the accreditation criteria, which will include privacy and information security requirements.

Data will likely be shared using an Application Programming Interface (API), which experts say is the most efficient and secure way to share data with third parties.

Unless you provide explicit consent, your bank can’t share your data with any other business. But if you’re open to it, you can tell your bank to share your data with any organisation or business you nominate – even a direct competitor.

Banks are among the world’s heaviest investors in cybersecurity and, according to CHOICE, the government bodies charged with overseeing the introduction of open banking are alert to potential issues.

When will open banking be available in Australia?
Open banking is being phased in from 1 July 2019, although customer data won't be made available until February 2020, due to concerns that the requisite legislation will not be passed by the end of this month, according to the Australian Financial Review. It is also expected that energy and telecommunications industries will follow soon after.

Would you be an early adopter of open banking? Would you trust such a system? What do you foresee the problems of open banking being?

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    COMMENTS

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    pedro the swift
    9th Jul 2019
    11:11am
    Open Banking? a hundred more ways to get your account hacked!
    Old Geezer
    9th Jul 2019
    3:27pm
    They know all about you now so nothing will change.

    9th Jul 2019
    11:19am
    It's a myth that changing banks to obtain a better interest rate is simple. Even with open banking there will remain quite a few stumbling blocks which will cost those wishing to change. Firstly, there will be an application fee with the new provider, legal fees and establishment fees together with fees to discharge mortgages from the previous provider. Anyone wishing to change for a lower rate should weigh up the amounts saved against the costs of moving and should discuss the rate with one's current loan provider.

    If there are direct credits and direct debits, these will need to be changed and the bank that one is leaving has no obligation to forward the debits or credits but may return them to the originating entity. The transfer of these to the new bank also involves the speed of the companies which handle the direct debits and credits and in my experience involves keeping the original account(s) open until all transfers have been completed.

    Apologies for being negative when the story is about saving money which should be a good thing. Reality sometimes outweighs ideology.
    Old Geezer
    9th Jul 2019
    3:26pm
    Never had a problem or any of those fees.
    Anonymous
    9th Jul 2019
    3:55pm
    Why OG? How could you change from one lender to another, use real estate as security and not pay the expenses involved?
    sunnyOz
    9th Jul 2019
    8:41pm
    Old Man - you are right about refinancing a home loan. I had an investment house, that was just on positively geared. But I wanted to get a lower interest rate. I am retired, on a part pension. NO bank would even look at me because I was not working. No-one would even look at me - did not take into account my being able to service the loan, all they looked at was that I was no longer working. I could easily service the loan, but was stuck on a high interest rate home loan. Only in the last 2 weeks, I have sold it.
    travelman
    9th Jul 2019
    11:47am
    I say absolutely, NO, NO, NO. When Scott Morrison recommends it I head in the opposite direction. We have just had a Royal Commission on the banks that has revealed to us how corrupt the banks are. It is bad enough trusting one bank with your private financial details, I shudder at the thought of trusting all the other banks getting my details. Open banking is a unnecessary risk, one hacking into one bank could see your bank account robbed of all your money. Sure the bank has to refund your loss but I would not trust them - could take months to years to get your funds back. NO THANKS. I belong to a Credit Union, have been for years and I know I am safe because they are honest and don't rip me off. As for hacking - never been a problem. Try a Credit Union - much better and no risk.
    GeorgeM
    9th Jul 2019
    8:34pm
    Morrison was and is firstly a Salesman! He would like businesses to have full access to all your data so they can bombard you with sales offers. We can be sure that will include some offers from Nigerian Banks given your data will be stored all across the world! Oh yes, if you are lucky to be saved from your duplicate identities which will multiply!
    Karl Marx
    9th Jul 2019
    11:59am
    hahahahaha, recommended by Scott Morrison. Wouldn't touch it with a barge pole. You'll most likely be flooded with emails etc by rival financial institutions.
    And giving the banks etc lower costs only means one thing, more sackings & sending there services offshore.
    Hello, Mumbi here, what's your account name, number & password. hahahahahahaha
    johnp
    9th Jul 2019
    11:59am
    Keep away from it
    cos of possible hacking, electronic fraud etc. Obvious from the statements above such :
    "share your financial data with a range of financial institutions"
    "More availability of information"
    "Granting third-party access to your data"
    "Open banking only allows businesses to access your data"
    "you can tell your bank to share your data with any organisation or business
    Hawkeye
    9th Jul 2019
    1:05pm
    Funny how every time a government "opens up" something to enable lower prices by promoting competition, it always ends up costing me more (think Electricity, Water, CTP Insurance, etc)

    The only competition seems to be between the providers as to who can get away with the biggest rip-offs.
    KSS
    9th Jul 2019
    1:55pm
    Do you lot not read the whole article?

    "Open banking only allows businesses to access your data once you’ve authorised it. Only accredited entities who have satisfied stringent accreditation protocols can access this data."

    What part of "once YOU have authorised it" do you not understand? If you don't want it, don't give consent. But I can guarantee there will be millions who do.
    Hawkeye
    9th Jul 2019
    8:43pm
    And you've informed the hackers/scammers of this fact, KSS?
    Karl Marx
    10th Jul 2019
    12:15am
    KSS If you authorise it, it is a blanket authorisation so ANY business or even bogus business in the financial sector will be able to access to your details & after the RC into banking & finance I wouldn't trust a bunch of cheating, lying, greedy bunch of crooks.

    10th Jul 2019
    12:58pm
    ..not for me!
    musicveg
    15th Jul 2019
    11:27pm
    Don't trust it and don't need it, all my banking in one place, makes me wonder who really will benefit from this?