Open banking started in mid-2020, requiring major Australian banks to make your data available to you upon request. Despite plenty to gain from open banking, including a lessening of paperwork and greater transparency, there are traps for the unwary, given lenders have access to more of your history than you think.
What is Open Banking?
The Australian Banking Corporation states that “open banking gives you the ability to share your banking data with third parties that have been accredited by the Australia Competition and Consumer Commission (ACCC).”
Australia’s bank customers can give their permission to share the data so third parties can access their savings and credit card data. This also means having access to mortgages, personal loans, and joint bank account data.
Ultimately, open banking relates to the Consumer Data Right allowing Australians to move around and easily access their data, as well as sharing it with others.
The Benefits of Open Banking
The Australian Banking Corporation says an open data environment, such as open banking, ramps up competition and gives consumers the opportunity to negotiate better deals.
When open banking began, then Treasurer, Scott Morrison announced, “Granting third-party access to your data will allow rival providers to offer competitive deals, products that are tailored to your needs, and enhanced services that meet the customers where they are at. Banks won’t be able to afford to take customers for granted and lock other competitors out.”
Open banking was slated as making the process of switching banks easier, with Scott Morrison saying, “This disruption to the major bank stronghold on data will make the process of switching banks less painful and help overcome the ‘hassle factor’ that sees customers stay with their current bank even when there are better deals.”
Importance of Understanding Open Banking
The rollout of open banking is due to be finalised in February 2022, which means it is important for consumers that are planning to get a loan, to know just how much information lenders can access.
This is especially relevant after Frollo’s The State of Open Banking 2021 report found 59% of their respondents (professionals representing banks and lenders, fintech’s, technology providers, and brokers across the country) said they use open banking to decide lending outcomes, verifying income and expenses.
Lenders have access to five years of transaction history. This includes your borrowings, mortgage, and credit cards, but also extends to include payment history related to your water, electricity, and rate payments. No longer can a consumer wait until they receive a second reminder on their telco/utility bill, without it leaving a mark on their payment history.
All of which can have an impact on your lender’s confidence and your borrowing capacity.
The consumer must give their consent to become a part of open banking, so until you take this step, your bank cannot share your data with any other businesses.
According to the Australian Banking Corporation, the data shared through open banking includes:
- Personal information (phone number, email, address)
- Bank account (balances)
- Product information (rates, fees, and features of bank products)
- Transaction details (amount spent)
“As a bank customer, you will be able to ask that your data be sent to accredited businesses which may be other authorised banks, financial institutions, and organisations. You have control over how your data is used, and to whom it is given.” – Australian Banking Corporation
The downside of course, and an aspect that catches some unaware, is that if you refuse to provide that consent, a lender will be suspicious of the reasons why and may decline to provide credit. It is going to be very hard for a consumer to hide from any indiscretion, even if it is out of character.
If you want to better understand open banking, and what it can mean for your lending capacity and portfolio, contact the team at Southshore Finance today.