Open banking: The data sharing revolution

Open banking is an innovative process aimed at revolutionising traditional banking systems across the world and has been implemented in Australia since 2020. The notion of consumer-centric banking has the potential to change how you handle your personal finances. It’s important to be aware of what open banking means for your future money management.

Comprehensive credit reporting: the first step

Comprehensive credit reporting (CCR) has changed the way lenders assess credit applications. Lenders no longer just take into account your credit enquiries and defaults when you apply for a new financial product or line of credit, but also examine ancillary information including: 

• The date you opened the account
• The date you closed the account
• Credit limit of the account
• Type of credit
• 24 months’ worth of repayment history.

The idea is that, by taking into account a broader subset of data, a lender is now getting a more holistic, well-rounded idea of what you’re like as a borrower and therefore will be able to offer you more relevant, tailored interest rates and deals.

The move to a comprehensive credit reporting system is the first significant step towards an open banking system in Australia because it puts power back in the hands of consumers.

Data sharing

If comprehensive credit reporting is the first step, open banking is the complete marathon, but it’s still all about data - your data, actually. We’re talking transaction records, account balances, credit card usage and repayment history. Under the old school banking system, this data technically belongs to and is collected by banks and financial institutions and only they get to decide who sees it. However, that’s now changed.

The concept of open banking explained

Open banking centres on the idea that you deserve to have complete access to the consumer data that is collected by banks and financial institutions. This is important because, with it, you’re better informed to make wiser financial decisions about the providers and products you choose to manage your money with. 

Essentially, you can choose whether you want to share your data with other big banks, smaller lenders and other up-and-coming fintechs so that you can get the best possible deal when it comes to your personal finances.

The infrastructure

An open banking system requires consumer data to be transferred from one bank to another (or a third party) instantly and in full, at your request. Lender’s data-sharing mechanisms connect with one another to make up an open banking network that is capable of instantly sending and receiving consumer data.

Comprehensive Data Right (CDR), which is the service created to facilitate data sharing for consumers between financial players, has been live since 2020. Banks can share selected banking information (think credit card, home loans, personal loans and deposit account data) with other Aussie financial institutions, as well as ACCC-accredited third parties.

Banking in Australia has seen better days. There has been a growing level of distrust with some of our biggest banks that has been accelerated by various examples of misconduct in recent years.

In July 2024, the Australian Banking Association highlighted that the system designed to promote open banking hasn’t been widely adopted, three years after its introduction. By the end of 2023, only about 0.31 per cent of bank customers were using the Consumer Data Right (CDR). Additionally, more than half of the data-sharing agreements established have either been discontinued or have lapsed over the past year.

You might have only recently heard of the term ‘open banking’, but it’s an idea that we’ve been curious about in Australia for many years now. For a full rundown of how we got to this point, check out the timeline below.

• December 2014: “Hey, customer data is kind of important, we should share it." The Murray Inquiry (Financial System Inquiry) recognises the role data sharing has to play in creating new business, products and services that will improve customer experiences.
• November 2015: “Customers need access to their own data to find the best deal.” The Harper Review into Competition Policy recommends that the Government find ways to improve individuals’ ability to access their own data so they can make better decisions when it comes to their money.
• October 2016: “Banks should be sharing data by July 2018.” A Review into the Big Four banks, known as the Coleman Report, strongly recommends that Aussie banks start to share customer data - even going as far as creating a timeline to get the ball rolling.
• May 2017: “We’ll call it the Comprehensive Right to Data.” Commissioned by the Government, the Productivity Commission’s Data Report, proposes a few reforms around how our economy uses data including a ‘Comprehensive Right to Data’, which will give consumers and small businesses access to their data.
• November 2017: “Okay, let’s do this thing!” After years of reporting and reviewing, the Government finally give the green light to introduce the Consumer Data Right across energy, telecommunications and of course, banking. Scott Farrell, a partner at multinational law firm, King & Wood Mallesons, will make a bunch of recommendations around how to get this thing going - open banking is on its way!
• February 2018: “This is what open banking should look like for us.” After three months of hard work, Scott Farrell delivers a 158 page report into open banking , making a range of recommendations about the legislation, regulation, and security involved as well as calling on submissions from the players (banks, consumer bodies, fintechs) that are likely to be involved in the new banking scheme.
• August 2019: "Let's make this legal." Federal parliament gives the review and open banking the green light by legislating the changes needed for open banking to happen. 
• July 2020: "We can share our data now! Well, some of us." On July 1, Consumer Data Right (CDR) goes live for major bank customers and accredited data recipients. However, data sharing is limited to certain products for the time being.
• July 2021: “Here comes everybody else.” This marks the moment that other, smaller financial institutions were able to join the open banking data-sharing platform.
• February 2022: “Fully loaded data.” Complete data transfer available for all consumers.
• August 2024: “Attempting to kickstart the industry into action.” The government passes the “action initiation bill.” This allows consumers to instruct accredited organisations to take actions on their behalf, such as switching mortgage providers or setting up automated payments to achieve savings goals or loan reductions.

You can get started by visiting the website or app of an accredited data recipient - this is a provider, like a bank, authorised by the ACCC to access consumer data for open banking purposes. You can see a list of accredited providers on the government’s CDR website. From there, you can follow the prompts to share your data.

Here’s a quick overview of the process outlined by the Consumer Data Right (CDR) website:

1. Provide consent: On the accredited data recipient’s site or app, you’ll need to give permission for them to access your data from your financial institution.
2. Identity verification: You’ll then be redirected to your financial institution’s CDR page to verify your identity, typically using a one-time password.
3. Approve data sharing: Your financial institution will prompt you to confirm what data you wish to share, how you’d like it to be shared, and for how long.
4. Data transfer: Once confirmed, your data will be electronically sent to the data recipient.
5. Access services: After your data is shared, you’ll be taken back to the accredited data recipient’s app or website to start using their services. For instance, if you’ve chosen to share your data with a comparison website, you’ll now be able to receive quotes and results based on your actual financial information.

Australia is well on the way to properly adopting a fully functional open banking system, but what are the advantages you can expect as a consumer?

Personalised finance products

One of the biggest consumer benefits that will accompany the open banking movement is the personalisation of your finance products. A small (but ever-growing) group of lenders, like peer-to-peer lender RateSetter, have been early adopters of comprehensive credit reporting practices and already offer personalised interest rates and loans to their customers. 

This will become even more prolific through open banking. CCR practices apply to home loan, personal loan and credit card applications - meaning you’re able to nab more competitive interest rates if you’ve been a good borrower in the past.

Easier to apply, switch and save

Switching between providers might offer significant savings, but the time and tedium surrounding the process often puts banking consumers off.

Open banking APIs will soon streamline the application and switching process so that you can instantly share your data, find out the rate or product on offer with another lender and potentially switch providers, all at the touch of a button and in a matter of mere minutes.

Increased competition between providers

In order to keep customers who are not just willing but able to easily access the best value financial products on the market, banks will need to consistently work to offer customers the best deals. This increased competition will ideally lead to lower rates or more innovative products.

And it isn’t just the big banks that will be offering these deals. One of the other major benefits of an open banking system is a host of smaller, up-and-coming lenders and financial providers will now be able to compete and diversify the Australian banking scene.

Innovation

It isn’t just new banking providers who can benefit from an open banking system, either. There has been a host of speculation surrounding API-powered third parties that could help enhance consumer banking experiences in Australia, like budget tracking apps or banking aggregators.

In fact we’re already seeing consumers share their data with fintechs like Sydney-based money management app Frollo. Frollo is actually the first accredited fintech 'data recipient' under Consumer Data Right, and we've used them to provide a run through which shows just how easy it is for consumers to share their data.