Non-ADIs urged to be included in open banking regime

Appearing before the Senate Economics Legislation Committee on Wednesday (6 March), Tommy Kiang, senior policy manager at the Customer Owned Banking Association (COBA), reiterated the association’s concern that non-authorised deposit-taking institutions (non-ADIs) are not mandated to participate in the impending open banking regime as data holders. As such, they can be accredited data recipients, but are not obligated to share customer data within the confines of the Customer Data Right (CDR), which is yet to be legislated.

According to Mr Kiang, this would enhance competition in the mortgage market.

“Non-ADI lenders do offer the same products as what ADIs offer with respect to home loans, personal loans… So, the question therefore remains why should non-ADI lenders not also be mandated as data holders as part of open banking to maximise the competition outcomes that are the core intent of this CDR reform,” he said, further pointing out that this concern has been raised with the Australian Competition and Consumer Commission (ACCC), which has been delegated the lead role in setting up the rules around CDR.

He continued to note that reciprocity will be “switched on” for ADIs from 1 February 2020, but that the ACCC “has remained silent” about when it will be with respect to when reciprocity will be switched on for other accredited data recipients”.

“The reason why I'm focusing on non-ADI lenders is because I’m interested in competition in the banking sector,” Mr Kiang said.

A similar concern was raised by Denise Hang, policy director at the Australian Banking Association, but in relation to other industries. She told the Senate Economics Legislation Committee on Tuesday (5 March) that while the intention is to implement an economy-wide open data model, sectors outside banking, telecommunications, and energy are not required to reciprocate.

“While the intention is for more and more sectors to be captured, the result is that non-designated sectors will be able to access data and not be required to share data in return,” the policy director said.

“Rather than a one-way flow of data from these sectors (banking, telecommunications, and energy) to other sectors, it would be fairer if all participants in the system were required to share data.”

She continued: “In order to speed up the establishment of an economy-wide open data regime, the minister should be required to designate datasets relating to other industries that access through the system.

“Non-designated sectors receiving data would then have some of their datasets designated so they would be required to share their data if their customers ask for it.”

During the hearing on Tuesday, Senator Chris Ketter questioned whether the CDR could make financial institutions with a strong foothold in the market – namely, the big four banks – even more powerful, pointing to a media report that claimed that mid-tier and mutual banks would struggle to compete with the majors, who have “the technology, scale, and sophisticated pricing capability” to be able to make the most of the data shared through the CDR system.

“I can see a campaign in the market where the mortgage acquisition teams of the big four can sharply price for better risk in a market where they want to attract more system growth,” the senator said.

However, Scott Gregson, the executive general manager of the ACCC’s mergers and authorisation review division, responded that, based on the ACCC’s experience, it’s the “smaller, niche, and maverick type players… that can provide the biggest competitive spur”.

“We do want competitive responses to flow from the consumer data right,” the executive general manager said.

“We do see the consumer data right as potentially assisting those – in the case of financial services, banks – to participate in the market. We’ve already seen, for example, the likes of Macquarie offering their own version of access to data to their consumers. We think they are the types of innovative businesses that will lead to better offerings.

“If anything, we would see it facilitating and enhancing the capacity of others to compete.”

Updated on 8 March 2019 to clarify that COBA was referring to the reciprocity mechanism under the Consumer Data Right.