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An even greater variety of loan options and increased competition is hoped to be brought about in the banking sector as the Consumer Data Right (CDR) is widened to also bring non-bank lenders under its remit, the federal Treasury said on Wednesday (30 November).
Following months of political and industry planning and discourse on draft legislation as to how, if, and why non-bank lenders could be absorbed into the system, Assistant Treasurer and Minister for Financial Services, Stephen Jones MP, formally confirmed the Consumer Data Right (Non-Bank Lenders) Designation 2022 ‘instrument’ had been made.
Against the backdrop that Australian consumers “deserve to have their data working for them, securely and safely,” the Assistant Treasurer said the Labor government was now “designating the expansion” of CDR to the non-bank lending sector in the hopes of improving competition.
Mr Jones said: “The consumer data right gives consumers power over the data their service providers collect, enabling them to shop around for a better deal.
“It uses enhanced data security, combined with a consent-driven, data-sharing model to quickly and securely match individual needs with the market offering that best suits them.
“CDR’s ‘open banking ecosystem’ is already empowering bank customers.
“We expect new and existing mortgage holders will benefit with access to better-tailored, more competitive deals.”
The minister added that, with CDR in the energy sector and soon to be rolled out to medium-sized energy providers and telecommunications providers, Australian consumers will have “more ways than ever to take control of household expenses.”
The Non-Bank Lending Designation Instrument can be found on the Federal Register of Legislation website, the government confirmed.
“The government will shortly commence consultation with industry and government stakeholders on the development of rules and data standards for the non-bank lending sector,” the Assistant Treasurer explained.
For all non-bank lenders — or is it?
While the new instrument is indeed tailored to non-bank lender open banking use, not all fall into the applicable categorisation.
As the documentation outlined, “relevant” non-bank lender means a corporation that is: a registrable corporation under section 7 of the Financial Sector (Collection of Data) Act 2001 or would be such a registrable corporation “but for the operation of paragraph 7(2)(i) of that Act.”
That paragraph specifically outlined that: “Section 7 of the Financial Sector (Collection of Data) Act 2001 defines registrable corporations essentially as corporations that are not ADIs” (Authorised Deposit-taking Institutions), but provide finance as part of their business activities. Paragraph 7(2)(i) excludes corporations whose lending is below a certain threshold.”
The draft designation instrument proposed a $50 million threshold of annual financing be included to cover non-bank lenders intended to be netted by CDR.
Background to CDR and open banking
According to the federal government, CDR “gives you more control over your data, enabling you to access and share your data with accredited third parties to access better deals on everyday products and services.”
If a consumer gives permission to share their data (for example, financial or energy data), their information is transferred using secure automated data technology.
“The process has been designed to give … greater choice and control through the convenience of a simple, easy-to-use process,” according to government.
CDR is an economy-wide reform that will be rolled out sector-by-sector and has already been “rolled out” to the banking and energy sectors, with telecommunications to follow.
As the Australian Banking Association (ABA) highlighted, bank customers will be able to ask that their data be sent to accredited businesses, such as other authorised banks, financial institutions, and organisations.
“You have control over how your data is used, and to whom it is given. The data is protected by the Rules of the ACCC,” the ABA explained.
In terms of mortgages and loan products, CDR first adopters have said that ‘cost, compliance, and speed efficiencies’ were just some of the benefits being realised from open banking.
Speaking at a NextGen discussion event last month, executive general manager for the Consumer Data Right, Paul Franklin, and representatives from Beyond Bank, Finsure, the Mortgage & Finance Association of Australia (MFAA), and NextGen outlined their positive experiences of utilising data from the CDR scheme.
Beyond Bank general manager customer experience, Nick May, highlighted that the bank was utilising open banking for its personal finance management (PFM) app — Beyond Bank+ — which was helping customers see all their financial information in one place and help them meet their budget and financial wellbeing goals.
He added that the bank would also be able to harness the open banking functionality to utilise a customer’s financial passport and embed it into the lender’s loan origination software to provide serviceability for mortgages (via first party as well as through the broker channel).
The end intention is that information from the app would be able to pull through to feed into the mortgage application form, he explained.
“It is going to offer some real hidden value to our customers because it’s going to better our time to ‘yes’,” Mr May stated.
“The ability to serve customers and the ability to collate that data — and not have to get customers to go away and do it — means that CDR and open banking is going to offer a lot of value, not just for our efficiency as a business, but provide ease for customers as well.”