Expect to hear a lot about open banking in the next 12 months.
Ahead of Treasurer Scott Morrison’s response to independent reviewer Scott Farrell’s report on an open banking model for Australia, anticipation is building for what the new era will hold as data flows more freely between companies, new “fintech” players and consumers. While debate has centered on both risks and opportunities to banks, Westpac general manager application development Tim Whiteley says open banking and “APIs” will take banking services to a new “personalised” level for customers and fast-track “open innovation” way beyond the advances from “apps” in recent years.
“We need to continue to innovate to be competitive. This includes providing a seamless and frictionless customer experience. Access to, and the use of, data will ultimately power the relationships we have with our customers in the future,” says Whiteley.
In Australia, a new regime is likely to start this year for banks, telcos and utilities after The Productivity Commission previously endorsed a new “comprehensive right” allowing consumers to transfer data from an incumbent to competitors. The government supported the move and tasked Mr Farrell to explore how to set up an open banking model for Australia, which some observers have warned could be a risk for banks as customers are lost to competitors.
But the banking industry has committed to fully participating in open banking, Australian Bankers’ Association chief Anna Bligh noting that they the banks “have learned from the lessons overseas and as the first cab off the rank for industry data sharing will pave the way for others” to share data and bring benefits across the economy.
A global McKinsey report last year into “remaking” the banks for a new environment of growing competition from technology players noted that one big advantage banks had was the “exclusive access – for now – to mountains of incredibly valuable customer data”.
Balasubramanian Gnaanashekaran, product manager in global transaction services, a unit in Westpac’s institutional banking arm, says the new era will enable banks and fintechs to leverage their complementary strengths to improve customer services in a way they could not do on their own.
“Every business needs to survive and, rather than competing with each other, it will become more about how we complement each other and foster innovations and new ways of doing business,” he says.
The shift to open banking comes as the likes of Amazon and Apple transform consumer expectations and up the stakes in delivering service. For customers, open banking is heralded as enabling the use of data to make sure they are getting the best deal possible on products such as loans. For example, they could upload their data to a bank, a price comparison website or an app to assess their deal.
Amid ongoing debate about how best to implement open banking based on other countries’ experiences, there are expectations Australia may embrace a different open banking model from Europe following some data privacy concerns overseas.
APIs, or application programming interfaces – technology that allows new services to be plugged into the mainstream banking systems – are a key component of the shift to open banking that is already under way in the UK and the European Union.
Danny Gilligan, managing director of Westpac-backed venture capital fund Reinventure, says governance around data-sharing is shaping up as the big issue with the implementation of open banking and Australia can’t afford to “build systemic risk into an emerging digital economy by having reams of raw data and customers’ identities flowing around the economy”.
He says Australia should not follow the European model, arguing that “the approach they’re taking is building systemic risk into their economy”. He favors a “sensible middle ground” whereby algorithms are taken to the data, rather than having that data itself move through organisations.
“That way you get the innovation still occurring but you don’t compromise the security architecture of the overall digital economy.”
Westpac has been participating in government and banking debates about the best open banking and API infrastructure for Australia, proposing giving banks more time to build technology that would deliver all the benefits of the regime, while limiting the need for actual customer transaction data or personal information to be sent to third parties.
Jade Clarke, director of data innovation at Westpac, says it is clear that open-source APIs overseas have caused some privacy and security issues.
“When you look at all the evidence around open APIs, they’re very difficult to secure and this is particularly the case for personally identifiable data.”
Clarke wants to see Australia become a smart leader in this space through an approach that encourages “privacy by design and privacy by security”. While basic data such as branch locations and product data such as interest rates, for example, could be available on open-source APIs, other confidential consumer data should be subject to more stringent privacy controls.
“When it comes to personally identifiable information and transaction data, that’s a very different proposition and the risk profile of that data is different,” Clarke says.
This is an edited version of a story that first appeared on Westpac IQ.