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