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Open banking opportunity compared

11:33am March 18 2019

Australian ranks in the middle of the pack in terms of open banking adoption potential, according to EY. (Getty)

Open banking is arguably one of the most disruptive forces of change currently affecting the banking sector. 

From a consumer perspective, open banking offers a secure way for customers to grant providers access to their financial information, empowering them through increased ownership of their financial data and easier access to a range of financial products and services. And for the financial services industry it opens a range of new market opportunities and increased opportunity for innovation and collaboration. 

But, while it’s fast becoming a global phenomenon, open banking adoption varies widely around the world. 

To track its progress, EY developed the Open Banking Opportunity Index which assesses the potential for successful open banking adoption across ten key markets globally – Australia, Canada, Germany, Hong Kong, mainland China, the Netherlands, Singapore, Spain, the US and the UK. 

By looking at a range of indicators across four key pillars (regulatory environment, innovation environment, consumer sentiment and adoption potential) the Index paints an interesting picture of how open banking is evolving across the globe. The UK and mainland China came through as the clear leaders in open banking adoption potential (ranked #1 and #2 respectively), despite having significantly different regulatory regimes and contrasting consumer sentiment. 

So, how do we fare locally in terms of open banking adoption potential? Well, Australia ranks right in the middle of the markets surveyed, coming in at number five overall on the Index. Our research shows Australian consumers are positive but cautious about open banking, requiring regulators to control security and, importantly, participants to innovate. 

In other words, Australians are fully prepared to be delighted by open banking – provided we can get the data security right and put compelling offers in front of them.

Australian’s are early technology adopters, but we also tend to have somewhat conservative attitudes when it comes to privacy and security. In the Index, trust in the security of data came through as a key local market concern. Overall, Australia ranked ninth on their willingness to share transaction data with fintechs. However, when Australian consumers were asked the same question but with an added assurance that there would be effective controls over the security of the data exchange, we jumped up into fifth place.

This need for data security and protections is also reflected in the global results. In fact, half of the negative sentiment in consumers’ online discussion across the ten featured markets relates to concerns around data protection and cybersecurity, as consumers worry about the potential for fraud and the misuse of their data by third parties. 

The good news here is that Australia has a strong regulatory climate. We also have the opportunity to leverage and learn from the UK’s open banking implementation experience. So, getting the data security right and offering appropriate safe-guards and assurances for consumers is entirely feasible.

In our open banking online discussion analysis, which forms part of the overall Index, Australia was the top performer of all markets in the study on net online sentiment, with 40 per cent of all posts expressing positive sentiment, particularly around the topics of service innovation and increased consumer choice. So, there is a huge market potential here.

Australian consumers are keen to experience the benefits of open banking but, to fully engage them, financial institutions will need to move beyond just compliance, to competition.

Consumers are keen to experience the benefits of open banking but have some privacy and security concerns, according to EY. (Getty)

Our Index shows that several elements need to come together in order for open banking to be successful. Clearly consumer sentiment is a key driver. 

But that, in turn, is at least partially driven by having innovative and interesting offerings available in the market. If Australian banks and financial institutions only do the minimum needed to comply with the new open banking regulations, they risk missing a significant opportunity to engage with and attract customers.

Australia currently ranks sixth in terms of innovation on our Open Banking Opportunity Index. While not a bad result, it does leave plenty of room for improvement. 

The challenge now is to embrace, rather than resist, the impact of open banking. We need to foster an environment that promotes innovation, competition and the creation of compelling use cases. Embedding a culture of collaboration and partnerships will also be essential.

The government recently shifted a portion of the open banking scope originally scheduled for major banks from July 1, 2019 to February 1, 2020. This more relaxed implementation schedule allows Australian banks and other financial institutions a chance to pivot their open banking conversations, from being focused purely on complying, towards a more holistic discussion about how they can best use the opportunity to compete and delight Australian consumers with new services and offerings. 

Open banking offers opportunities for organisations to redesign the customer journey; making it easier for Australians to assess, select and manage their finances. Maximising the benefits of open banking, for both consumers and financial institutions, will depend on organisations’ abilities to use innovation to drive more value from the mandated changes that are on their way.

Those that think cleverly about how to compete will be in an excellent position to unlock increased market potential.

The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.

The views expressed are those of the author and do not necessarily reflect those of the Westpac Group.

Mike Orman is EY Oceania Financial Services Technology Leader. Now based in Sydney, Mike has extensive experience in managing operational and technology functions, defining business strategies and leading large-scale technology and process change initiatives across a range of financial services sectors – including payments, retail banking and lending – in both the US and Australian markets. His key areas of focus include open banking, core banking transformation, post-merger technology integration, and systems development and integration.

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