Open banking to usher new wave of products

Scott Walll, chief information officer of Melbourne-headquartered mutual bank BankVic, told the IQPC's Open Banking Virtual Event that there is an opportunity for banks to capitalise on the sharing of consumer data under the new open banking regime by building products and services based on the data they collect from their consumers about their spending and savings habits.

The Australian banking sector recently welcomed the official launch of the open banking regime in July. The regime officially began with the launch of the consumer data right (CDR), which enables consumers to securely share their banking data to access bespoke financial products and services.

The CDR is currently limited to the sharing of data for deposit and transaction accounts, and credit and debit cards. From 1 November 2020, they will also be able to share data relating to home loans, personal loans, and joint accounts.

Speaking at the webinar in a panel discussion, which explored the consumer data right and open banking in Australia and around the world, Mr Wall posited that creating data-driven products and services could carry lower risk than lending products.

“Lending is expensive. You’ve got to hold capital, you run a larger risk that they don’t pay back well,” he said, suggesting that this could prove to be problematic, particularly in the current environment during the coronavirus pandemic, with spikes in unemployment levels and banks around the world having to set aside enormous reserves.

“But if you're selling a data product, that’s not quite the problem. You don’t have to have any capital backing it. You don’t have to worry about them not paying you back,” Mr Wall said.

Further, these data-driven products and services could include fees, which could form a recurring income stream for banks, Mr Wall suggested.

He added that these fees would not be influenced by fluctuating interest rates when the central bank changes the base rate.

Moreover, banks need to have the ability to manage data in real time and use that data to drive decision-making, including what they offer to their customers, Mr Wall said.

“The challenge is processing that data in real time. Most banking systems were built 40 to 50 years ago and, certainly, the principles of most banking systems are batch-driven,” he said.

“We run an overnight process each night and we move money from day one to day two. Whereas if you look at where people want to be, they don’t care about the fact that the payment was made on close of business on day X. It’s just,: 'I have money in my wallet, I have money in my bank account, I can move it, I can spend it, I can accrue interest on it.'”

Noting that banks have extensive knowledge about how their customers spend money or which provider they choose (from their energy provider or telecommunications provider, to the supermarkets they frequent), Mr Wall pondered whether consumers would be comfortable with the idea of banks using this knowledge to provide targeted product or service offerings.

“Are our members/customers comfortable with us data mining their transactions, and offering them products and services?

“I think they will be if they are able to see very clearly that it’s of benefit to them,” Mr Wall said.

The Australian Competition and Consumer Commission (ACCC) recently launched consultation on draft rules that would enable authorised third parties with “unrestricted” access to collect CDR information on behalf of other accredited persons.

The current Competition and Consumer [Consumer Data Right] Rules 2020 do not provide for the use of third-party service providers who collect or facilitate the collection of CDR data on behalf of accredited persons, or intermediaries.

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