Jerry Norton

Open banking in Australia: The next big wave of open banking

Australia’s Consumer Data Right (CDR) law takes effect in July 2019 and will usher in an era of open banking across the country. The law centers on giving consumers the right to “own” their data by giving them open access to their transactions along with control over who can have and use their data.

While the law’s application is limited to Australia, banks worldwide will be watching to see what happens. What will be the impact of the new law and how should banks prepare for it? These are key questions as the implementation deadline looms less than a year away. 

The impetus for CDR

CDR is an economics-based law founded on the principle of “information symmetry.” The idea is that, in a digital economy driven by open standards, markets will function best if they offer consumers the benefit of good information, data transparency, and the ability to easily select and switch providers. Giving consumers ownership of their data is key to achieving information symmetry. Traditionally, businesses have benefitted from consumer data, while consumers themselves have not. CDR sets out to redress this by giving more control to consumers, who in turn, benefit from greater choice and pricing.

The government also expects CDR to spur competition and innovation. Opening up markets through mechanisms like CDR paves the way for new market entrants and drives businesses to invest more innovation to attract and retain consumers. 

CDR’s impact on banking

While the CDR will ultimately regulate all consumer-driven sectors, including insurance, energy, and telecommunications, banking is the first sector of the Australian economy to which the CDR will apply.  The law’s enforcement body, the Australian Competition and Consumer Commission (ACCC), is developing CDR rules to carry out the law’s requirements within banking, setting the stage for the introduction of open banking.

The impact of the CDR on the traditional banking model is significant. With the traditional model, data control resides with the banks in a protectionist environment, limiting consumer choice and convenience. Data management under the traditional model also is rife with inefficiencies.

With the CDR, bank consumers will be able to easily access and transfer their data, facilitating easier and faster switching from one provider to the next and the purchase of products from multiple providers.  Banking will become more consumer-centric through more equitable and efficient data management. In addition, the law will open the banking value chain to new players, with the expectation of driving competition and innovation, which also will significantly benefit consumers. 

Recommendations for moving forward

The July 2019 implementation deadline for CDR is aggressive. Banks had a great deal more time to prepare for similar schemes in Europe, such the Revised Payment Services Directive (PSD2) and the Competition and Markets Authority (CMA) rules in the UK. PSD2 can be viewed as more basic than the CDR, and yet banks had years to prepare for it. While the CMA is somewhere in between the PSD2 and CDR in terms of complexity, the UK took two years to implement it. 

As the July deadline fast approaches, there’s an urgency for banks to prepare for basic CDR compliance by evaluating their current processes and technology. However, beyond basic compliance, there’s also an imperative for banks to take strategic advantage of the CDR.

The new law, for example, gives banks an opportunity to reconsider their current roles and evolve, particularly in the light of the digital revolution that’s engulfing the industry. For instance, some banks may wish to continue as a distributor and manufacturer of products, while others, focused today on distributing products, might want to become more of a manufacturer. Banks also might want to use the new law as an opportunity to expand their ecosystem by adding new partners.

Now is the time to pursue both basic compliance and strategic advantage. With similar initiatives already implemented elsewhere, Australian banks can learn from the experiences of other banks to help smooth their transition to the CDR. CGI has worked with banks around the world in preparing them for open banking, so we have a keen understanding of the issues and requirements. If you want to learn more about our work or discuss your organization’s CDR challenges and opportunities, feel free to contact me. 

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