Open Banking (OB) is being implemented in the United Kingdom (UK) and in the European Union (EU). In May 2017 the Government announced its intention to introduce an OB regime in Australia.
What is Open Banking?
Although the UK, the EU and Australia differ in aspects of scope and implementation, in essence OB comprises three key elements:
customers having greater access to and control over their banking data
banks being required to share product and customer data with customers and
with the consent of the customer, banks being required to share product and customer data with accredited third parties. The accreditation of third parties is addressed in rules produced by the Australian Competition and Consumer Commission.
The Government expects that such data sharing will improve price transparency, and facilitate comparison services that enable a customer to use price data, and data about their own spending and transactions, to choose products that are most appropriate for their personal or business circumstances, and facilitate switching from one provider to another.
It was originally intended that banks would commence OB on 1 July 2019, but in December 2018 the Government announced that only a pilot program would commence on 1 July. Under the current timeline, and consistent with the three key elements above, from 1 July the Big Four banks must (and other banks may) provide access to customers and accredited third parties to product data for credit and debit cards, deposit accounts and transaction accounts. No later than February 2020, the Big Four must provide access to: product data for mortgages; and consumer, account and transaction data for credit and debit cards, deposit accounts, transaction accounts and mortgage accounts. In July 2020, there are further obligations on the Big Four, and from that date other banks will participate in OB.
Open Banking and APIs
A key technology for the sharing and usability of data is the Application Programming Interface (API). APIs are not a recent technology, but their use to facilitate data sharing has increased dramatically as the Internet has become more consumer-focused. For example, Google uses APIs to make its popular Maps functionalities available for other parties to use in their websites and apps. A popular metaphor for an API is that of a waiter, acting as the interface between a patron at a restaurant table and the chef in the restaurant’s kitchen.
Consumers consenting to the release of data to accredited third parties is expected to facilitate the development of value-adding personalised services and advice. Current services performing this role are usually reliant on ‘screen scraping’ technology, which is generally less effective and less secure than the provision of these services through APIs.
Standards are being developed by the CSIRO’s Data61. The OB pilot will test the performance, reliability and security of OB systems.
Consumer Data Right
Put simply, the Consumer Data Right (CDR) is the implementation of the three key data sharing elements listed above in a range of sectors in the economy. A useful introduction is Consumer data and the digital economy published by the Victorian Consumer Policy Research Centre in July 2018.
In November 2017, the government announced that a CDR will be established sector-by-sector, beginning in the banking, energy and telecommunications sectors. In Australia ‘Open Banking’ is used as a shorthand term for the implementation of CDR in the banking sector. Consultation about the CDR in the energy sector commenced in February 2019, with the intention that the CDR will commence in the retail energy sector in the first half of 2020.
A CDR Bill was introduced in February 2019 and lapsed in April 2019 with the conclusion of the 45th Parliament. A law firm described the Bill’s proposed CDR framework from a consumer perspective, and the Parliamentary Library’s Bill Digest included an outline of the CDR as a legal framework. The Digest also summarised the views of stakeholders (see also the report of an inquiry by the Senate’s Economics Legislation Committee), and noted that ‘Labor supports the CDR but opposes what it perceives as the Government’s rushed implementation process’.
The re-elected Coalition Government’s proposed legislation list identifies a new CDR Bill for introduction and passage before the end of 2019. Depending on the Government’s negotiations in the Senate and the activity of stakeholders, there may be momentum for further consideration of the CDR Bill's specific provisions and, more broadly, how the proposed CDR framework may operate.
Will OB and the CDR overcome consumer inertia?
Examples from the UK suggest it is possible that the CDR may prove to be a necessary but not sufficient measure that enables consumer choice, but which must be supplemented or supported by other measures if consumer choice is to be acted upon.
The UK Open Banking system commenced in January 2018. Looking back on the first year of operation, Forbes reported that not all established banks had fully transitioned to new OB arrangements, and that ‘there is also resistance on the consumer side’. Commencing in 2011, the UK has implemented some aspects of consumer data sharing in its retail energy sector. However, in March 2019 it was reported that, according to Ofgem, the UK energy regulator, ‘60 per cent of British households are still on default energy tariffs, despite these being generally the most expensive plans’.
Ofgem trials (for example, the Cheaper Market Offers Letter and the Active Choice Collective Switch) suggest that improved data and comparison services may need to be supplemented with nudge techniques associated with behavioural economics and behavioural science.