10 banking buzzwords to know about in 2021

In the world of banking, 2020 was a whirlwind. From three RBA rate cuts and the implementation of open banking, to the growth of some neobanks and fall of others, it can all be hard to keep track of. 

So if you’re left feeling a bit confused about what’s to come in 2021, we’ve got you covered. 

Here are our top 10 banking buzzwords you’re likely to hear more than once this year. 

1. Historical RBA Cash Rate Cuts

Last year, the Reserve Bank of Australia (RBA) made three cuts to its official cash rate, leaving it at an historically low 0.10%. In response to the outbreak of the COVID-19 pandemic, the RBA made the rare decision to cut by 0.25% twice in March, and then most recently by 0.15% in November. 

So what does this mean for 2021? These low rates are favourable to borrowers, as many home loan lenders have slashed rates - leaving some below 2.00%. On the flip side, this isn’t great news for savers as many deposit rates have also been dropped. So ultimately, it could be time to review your current financial products and shop around for a better deal. 

2. Open Banking/Consumer Data Right 

Still in its early stages, steps towards open banking were made in July of 2020. The introduction of Consumer Data Right (CDR) has been the most significant move in this space to date. CDR is an opt-in service which is managed by the Australian Competition and Consumer Commission (ACCC). It enables banking customers to share their data more easily with financial institutions (and eventually to energy and telecommunication providers as well). 

As of November 2020, customers of the big four are able to access and share mortgage and personal loan information. From July 2021, customers from non-major institutions will be allowed to share account and transaction data across all banking products. This will make applying for new products easier and allow banks to create more personalised rates to suit you. 

3. Comprehensive Credit Reporting

For Australia’s big four banks, comprehensive credit reporting (CCR) has been compulsory for just over a year. It is a system where these institutions must record both customers’ positive and negative credit information on their credit history. This was put in play to enable lenders to assess the risk of a potential borrower more thoroughly and accurately. Other large lenders are set to use CCR by the middle of 2021. 

4. Responsible Lending

In 2020, the Morrison government announced that it intended to scrap responsible lending when issuing home loans and other credit products. This would allow banks and lenders to offer customer loans without a rigorous application process. The shift would mean the responsibility lies on borrowers instead of lenders when it comes to honestly disclosing income and spending information. 

Additionally, the role of the Australian Securities and Investments Commission (ASIC) in enforcing responsible lending obligations would be reduced. In turn, it would free up ASIC to focus on regulating other areas like payday lending, consumer leases and other high-risk non-banking products (like introducing caps on interest).   

5. Stamp Duty 

During 2020, both NSW and ACT announced they will make moves to phase out stamp duty this year. And the Victorian government implemented discounts to stamp duty as part of its 2020-21 budget. 

What is stamp duty? It is a type of tax that property buyers pay to the government. In the eyes of some state governments, phasing out or discounting stamp duty would allow more Australians to purchase a home.  

6. Risk-based Pricing 

Risk-based pricing refers to a system where banks and lenders offer customers a personalised interest rate based on their credit rating. Whilst this type of pricing has been around for many years, it is becoming more popular among personal loan lenders. 

Not only does this form of pricing benefit those with a healthy credit history (as they receive a competitive rate), it also allows those with a worse credit history to borrow (at an appropriately higher rate). Throughout 2020, some lenders switched to this model - so there are plenty of options for these types of loans in 2021. 

7. Refinance Home Loan 

With many Aussies looking to bulk up their savings and pay off their existing debt in the wake of 2020, refinance mortgages are set to increase home loan activity. As mentioned, due to the three RBA cuts in 2020, there are some extremely low rates on offer right now. So if your home loan is currently sporting a hefty interest rate (anything above 3.00%), it’s likely time to make the switch.  

8. Rewards Points 

2020 was the year that Aussies bid farewell to international travel, leaving many people stuck on how to spend their credit card rewards points. While it is still not known when we might start travelling overseas again, it could be worth it to keep your points earnings going. 

In some cases, your points may not expire meaning you have the freedom to wait until you can spend your points on flight. But on the other hand, if you do have a time limit on using your points there are other options, like domestic travel, online rewards programs stores and redeeming points for gift cards. 

9. Buy Now Pay Later 

Over the past five years, the Buy Now Pay Later (BNPL) industry has grown to become an extremely popular way for Aussies to pay for a number of different products. The industry has operated without much regulation, however in 2021 that is set to change. 

At the end of last year, ASIC published a report on BNPL which outlined the regulatory changes that are in motion. These include design and distribution obligations (to come into effect October 2021) and the development of a Code of Conduct. While the details of the code are yet to be announced, it will provide the industry with an opportunity to address consumer harm. 

10. Neobanks 

The world of neobanks was a bit of a rollercoaster during 2020, as the effects of COVID-19 set in. While there were some new players and products that came onto the scene, a big change to the space was in December when Xinja announced it would be returning its ADI licence and discontinuing its banking products. 

With both positive and negative changes happening in the space, it is definitely worth keeping an eye on in 2021. 

Want to start the year off on the right banking foot? Why not check out these bank accounts below or head over to our bank account hub for even more options!

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