Open Banking is finally here: How will it impact your money choices?

The shift towards an open banking system which puts more power in the hands of Australian customers is well and truly underway.

The launch of Consumer Data Right (CDR) is the most significant milestone to date in this arena, as it allows Australian banking customers to share their own banking product data with third parties such as fintechs and other banks - making it easier than ever before to switch to a better deal.

But why is this important? What’s involved? And what are the benefits? Read on for more.

What is Open Banking and Consumer Data Right (CDR)?

Open Banking: A move towards greater transparency and open data in the banking sector. One which gives consumers greater freedom over their data and creates more competition by allowing third parties to more easily participate in the space. 

Consumer Data Right (CDR): An opt-in service overseen by the Australian Competition and Consumer Commission (ACCC) which allows consumers to share their data more easily with financial providers. Will also apply to energy and telecommunications in the coming years.

Open Banking timeline

• May 2017: Federal Government announces support of an open banking system in Australia and commissions a review on the subject in the following months.

• May 2018: Government agrees with review recommendations including the creation of a Consumer Data Right (CDR).

• August 2019: Parliament legislates changes to allow for open banking.

• July 2020: CDR goes live for customers of big four banks and accredited providers. Sharing limited to credit cards, debit cards and deposit accounts.

• November 2020: Big four customers can begin to access and share home loans and personal loans data.

• February 2021: Business lending, line of credit, foreign currency account and overdraft data becomes available to major bank customers

• July 2021: All non-major banks, building societies and credit unions required to allow customers to share bank account, savings account, credit card and debit card data.

As you’d expect from the name, Open Banking is all about providing a more open system which shifts some of the power away from banks and other financial institutions back into consumer hands - especially when it comes to data.

Under the present system, consumers don’t have ready access to their own data, making it a cumbersome process to collect and share it with other financial providers if, say, you were looking to make the switch to another bank.

It’s not just about making things smoother though, it’s also about providing more choice. Banks have often been reluctant to allow consumers to share their own data with third party fintechs such as investing and money management apps.

No more though. The move to a more open banking system aims to remove these obstacles, and that’s where Consumer Data Right comes in.

CDR is the actual service which is facilitating the shift to a more open banking system where  consumers can share their existing banking data with a range of third party institutions such as other banks, building societies, credit unions, online lenders, fintechs, money management apps and comparison websites.

It is overseen by the ACCC which is also the regulator responsible for vetting and accrediting third party providers that want to participate in the service.

At the moment, data sharing is limited to credit cards, debit cards, savings accounts and bank accounts for non-major banking customers. However, this will expand out to products like home loans and personal loans (November 1, 2021) and then to a variety of other products (February 1, 2022). Customers of the four major banks are able to request data sharing on all of their products!

Consumer Data Right won’t stop at banking either. In fact, it’s just the start, because the plan is to continue to roll out the service in the years ahead to include energy and telecommunications providers as well.

How will open banking help Australian consumers?

We’ve talked about how open banking and CDR will make things more open and give consumers more freedom to share their own banking data, but what are the real benefits? Here are a couple of examples.

1. Applying for new products will be faster (and less painful)

Ready to take out a mortgage? Perhaps it’s time to switch credit cards? Applying for a new product or switching banks altogether has, traditionally, not been an easy process. It takes time and effort to amass all the bits of information required.

Unfortunately, that process often stops people from making the switch or exploring alternative options, which, at the end of the day, could have saved them money.

Under CDR, applying for a product with a different provider or even switching banks completely will be made a lot faster and easier though. Instead of doing all the legwork yourself, you’ll simply be able to share your existing banking data with a third party with just a few clicks.

2. It will be easier to make use of fintechs and apps

Money management apps, budgeting apps - there are a bunch of services out there designed to help Aussies make their financial lives easier. To work effectively though, these apps rely on data like day-to-day transactions, savings and debt. After all, the more data provided, the richer the insights.

Traditionally there have been a few hurdles in this space though. Banks have often been reluctant to allow customers to share their data with these sorts of third parties and consumers have been, understandably, weary about giving access to their accounts.

Open banking will hopefully go some way to solving these issues by allowing consumers to share their own data safely with ACCC-approved apps and fintechs who decide to participate in the CDR service.

3. There will be more personalised rates and offers

Personalised rates are nothing new, particularly in the personal loans space. But open banking is likely to supercharge the trend towards more personalised banking by making it easier for consumers to provide a fuller picture of their financial position when applying for new products.

This will likely be based on a system of risk-based pricing where customers with more constrained spending habits, a secure financial position and better credit history will be rewarded with more competitive offers.

Of course the flip-side here is that consumers with worse credit history may not be able to access the very best offers out there until they repair it.

How do I share my data under CDR? A walkthrough with Frollo

So now you know what open banking and CDR are all about, and you’ve got a few ideas about how they’ll improve your financial life. But how does sharing your data under Consumer Data Right actually work?

Here’s a quick run through using the very first fintech to be an accredited CDR data recipient as an example: Frollo. For background, Frollo’s 2021 Mozo Experts Choice Award winning money management app allows users to sync existing accounts and products from a number of different banks to get a more comprehensive picture of their finances.

Here’s how you’d share your existing banking data (say, from NAB) with Frollo:

1. You actually start the data sharing process in the Frollo app. You’ll be run through a couple of screens which describe the data Frollo will be getting from NAB on your behalf. You select how long you’d like them to get that data for: 3, 6 or 12 months.

2. Once you give your consent on the Frollo side, you’ll be directed to a NAB screen (NAB’s website) where you’ll essentially repeat the process by confirming the information you’re happy to provide to Frollo. And again, the period you’re wanting to provide it for.

3. To verify yourself, you’ll be asked to enter your bank registration number. You’ll then be sent a one-time password which you’ll be prompted to enter on the NAB screen to confirm the process.

That’s it! According to Frollo it only takes about 20-30 seconds to gather, categorise and enrich up to 12 months worth of data which is then made available in the app.

Wondering what the process is to opt out? You’ll be able to do that either in the Frollo app, or with your bank which will have a list of any fintechs or other players you’re currently sharing data with under CDR.

Which banks, fintechs and other players are involved in CDR?

Because CDR is still being rolled out, there are only a handful of accredited providers in the system at the moment. These are split into two categories: Data Holders and Data Recipients.

Data Holders

Data Holders are the providers set up to share consumer banking data under CDR. As of July 2, 2021, the list of active data holders includes:

• AMP Bank

• ANZ

• Australian Military Bank

• Citi

• Bendigo and Adelaide Bank

• Commonwealth Bank

• Heritage Bank

• HSBC

• Judo Bank

• Macquarie

• NAB

• Regional Australia Bank

• Suncorp

• Tyro

• Volt Bank

• Westpac

More non-major banks, building societies and credit unions will be coming on board from throughout July 2021 though.

Data Recipients

Data Recipients are the accredited banks and other third-party players which consumers can choose to share their banking data with. This list is also quite small at present, though expect it to grow as non-major banks start to be required to be able to share customer data. Some of the active data recipients at present include the Commonwealth Bank, Frollo and Regional Australia Bank.

For more information about data holders and data recipients, including the accreditation process, the official Consumer Data Right website has a page dedicated to current providers .

RELATED: Open banking and how it could affect your personal loan application

Keen to keep up with all the innovations and new developments in Australian banking like open banking? Check out our dedicated fintech and neobank hubs for the latest news, guides and provider reviews.