Risk, cost and low awareness slowing open banking

In the fourth edition of its State of Open Banking report, released last week, Frollo examined why open banking has had a relatively slow uptake, despite the advantages it could provide for organisations and consumers.

The open banking specialist found that while the technology continues to evolve, many Australians “aren’t even familiar with the term open banking, and most are still yet to use it”.

Regarding the obstacles holding back the adoption of open banking, Keystart Loans chief operating officer Lindsay O’Sullivan said that, for some, “they fear there is a risk of making it easier for other firms to compete”.

Mr O’Sullivan emphasised further hurdles faced by businesses looking to implement open banking, including:

• Getting “your head around the obligations under the Consumer Data Right (CDR) regime”.
• Being clear on the use cases for your firm.
• Having people with the appropriate skills.
• The significant investment and “technical challenges related to technology or data that may not be easy to resolve quickly”.

Frollo’s chief customer officer (CCO) Simon Docherty wrote in his summation for the report that the cost and resources required could have put off smaller banks and organisations.

He added: “Larger banks most likely have the budget and resources to launch open banking use cases and start getting returns on investment.

“When larger banks actively lead the charge, it helps other bank CEOs and boards prioritise CDR-driven projects, knowing they need to remain competitive.

“It’s also clear that larger banks’ active use of CDR provides the scale to drive crucial customer adoption and awareness and that customer adoption will lift the entire ecosystem.”

In the report, Fintech Australia’s general manager Rehan D’almeida added that implementing open banking and the CDR was “not an easy ask”, but if businesses could overcome it, they would be able to “see the CDR realise its full intended impact”.

He stated that government could help progress the uptake of open banking and the CDR by backing an awareness campaign to draw attention to and encourage greater adoption of CDR technology.

“We can’t rely on a ‘build it and they will come’ mentality. This hasn’t worked with prior fintech innovations, and won’t work here”, Mr D’almeida said.

“Many consumers do not understand what the CDR is.”

Despite the slow adoption, the report provided several examples of uses of open banking by organisations operating under the trusted adviser model, including:

• Finsure - Which is using the Financial Passport tool to provide a complete financial picture of a broker client’s position and enables them to use bank-verified data as a single source of truth for use in loan applications.
• AMP Advice - Through the AMP Money Management service that streamlines the advice process for financial advisers, mortgage brokers, accountants and their clients with open banking data.
• Sherlok - Through the use of open banking data to predict which customers are likely to leave their broker and alert the broker so they can take action to retain the customer.

In the report, chief executive of Frollo, Tony Thrassis, stated: “Although the initial open banking rollout is complete, it’s still really only the beginning for the regime, with many new use cases on the horizon and groundwork laid to deliver improved outcomes for both businesses and consumers.

“A regime the size and scale of open banking doesn’t grow overnight. It’s also a government initiative, but it relies on business buy-in, which takes time.”

Mr Thrassis added that organisations and the government needed to address “how CDR data can pass between participants more easily”, so open banking can be an alternative to screen scraping, with the current design seemingly not meeting it.

He stated that the pending adoption of open banking by non-bank lenders (through Open Finance) would also assist with the development of the technology and also help “expediting the withdrawal of screen scraping from some sectors”.

The Frollo CEO stated that “finally seeing the big four start to engage with open banking beyond their data holder responsibilities” would also help advancement in the use and uptake, as the partnership with NextGen and Commonwealth Bank of Australia (CBA) displayed.

[Related: Lending sector is ‘biggest opportunity’ in open banking: Frollo]