On 1 November 2020, a new milestone for open banking was set as the second phase of the Consumer Data Right (CDR) took effect.
Previously, CDR only applied to big four bank data on savings and transaction accounts, call accounts, term deposit accounts, current accounts, cheque accounts, debit, credit or charge card accounts, personal basic accounts and GST or tax accounts.
As of 1 November, individual customers of ANZ, CBA, NAB and Westpac can now share their data on their joint accounts, mortgages, mortgage offsets and personal loan accounts with an accredited recipient of the CDR (of which there are currently only six) to access their data on their behalf.
According to the chief customer officer of mortgage industry technology provider NextGen.Net, Tony Carn, the regime is “a pivotal event for Australia’s mortgage industry”.
Mr Carn explained: “Mortgages are large and complex transactions. To put things in context, in September 2020 alone we saw 120,000 loan applications were lodged with an estimated $63 billion in value. That averages around $525,000 per transaction. When we look at the typical cost to process an application in the industry, that adds up to being more than $300 million per month, but 35 per cent of those applications don’t convert.
“Open banking introduces significant opportunities to remove friction from the application process, reduce the reliance on supporting documents, lessen the burden on resources required to assess customer data and radically accelerate the approval process, and the impact of CDR is going to be a matter of survival of the fittest for those in the sector.”
Mr Carn elaborated: “The opportunity to streamline credit decisions by using CDR data to reduce unnecessary friction in the application process and speed up the decision process is a game changer for the sector.
“Use cases, such as income, expense and liability verification, will also help to reduce the costs and risks involved on the lender side, making it a logical and popular use case among banks, lenders, fintechs and brokers and aggregators alike.
“It also presents a new way for how customers can be sourced and nurtured through their life cycle. It’s not just the one moment in time (such as getting a home loan), but the opportunities to get customers ‘fit for finance’ before and after,” said Mr Carn.
What the finance industry thinks of open banking
Mr Carn made the comments while launching a new report, The State of Open Banking in Australia, in tandem with its newly acquired open banking fintech, Frollo (which was named the first Australian fintech to become a data recipient under the CDR scheme).
The report reviews the open banking regime and what the finance industry thinks of its utility and future.
The report draws on interviews with several industry leaders and draws on survey responses of 161 representatives of the finance industry, including brokers (28 per cent) and aggregators (8 per cent), banks and lenders (22 per cent), fintechs (20 per cent), technology providers (11 per cent) and others (11 per cent) including consultancies.
It found that 71 per cent of industry respondents intend to use CDR data, with more than half (58 per cent) stating that they intend to use CDR data within the next 12 months.
However, only 78 per cent of the finance industry respondents said they were familiar with CDR – with brokers found to be 25 per cent less familiar with CDR than the average survey respondent.
Despite this, brokers were the segment of the market that particularly valued the benefits of CDR once the use cases were outlined.
For example, streamlining the lending process through income and expense verification was identified as the most popular immediate use case for open banking, with 56 per cent of respondents rating it as valuable, followed by onboarding automation (52 per cent) and account verification (41 per cent).
The majority of respondents said they were looking to use CDR data within the next 12 months (including 78 per cent of aggregators).
Those that were looking to invest in becoming involved with the CDR scheme (either as a data holder or data recipient) said that “enhancing the customer experience” was the primary driver for doing so (64 per cent of respondents).
This was followed by product innovation (56 per cent), meeting the shifting customer demands (40 per cent) and optimising processes (40 per cent) – closely followed by compliance management (39 per cent).
However, Frollo CEO and founder Gareth Gumbley noted that the research revealed the biggest challenge for organisations was a lack of clarity around what it takes to become involved in the CDR in terms of costs and return on investment.
“The majority of respondents believe the uncertainty about the rules and customer education are considered to be the most important challenges in making CDR a success,” he said.
Indeed, several aspects of the CDR regime – including how intermediaries such as brokers can access the data – are still under consultation.
Moreover, the hurdles required to become an accredited data recipient (ADR) have been criticised by many as being too cumbersome.
However, the Frollo CEO said that first movers in the space will have a “real competitive advantage” by offering a superior user experience, which would put pressure on the rest of the industry to invest in catching up.
Mr Gumbley said: “We know that change at this scale doesn’t happen at the flick of a switch, but as it stands there is too much ambiguity. The rules aren’t clear, and for many it’s perceived as a mountain too big to climb.
“There’s a difference between consultation and collaboration.
“Now is the time for the regulator to invest in a simpler and more flexible framework to speed up adoption, or empower banks and fintechs to innovate and get on with it for the benefit of everyone else who will follow,” he said.
You can find out more about how the CDR and open banking regime will impact mortgages in Mortgage Business’s upcoming webcast The Advent of Digital Mortgages.
The free, live webcast will hear from Tony Carn and NAB’s Steve Kane as they walk through the ins and outs of what is needed to deliver a truly digital mortgage process.
You can register for the free webcast, here.
[Related: Mortgage data now included in open banking]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.