The arrival of open banking in Australia is inevitable; the question is more one of establishing and operationalizing a sensible implementation timeline that recognizes the nuances of the Australian banking industry, rather than arguing the sense and sensibility of such long-overdue reforms. The recent review announced by the Treasurer, Scott Morrison, to be led by Scott Farrell, gives us a sense of optimism that key tenants of the global move towards open banking will be considered within the context of the Australian banking system and our own competition and regulation policy and that a sensible implementation approach and timeline can be established to achieve the necessary reforms.
At the heart of it, supporters of open banking, in particular, government policy-influenced competition regulators globally, maintain a premise that large established banks do not need to compete hard enough for customers’ business, and that smaller and newer banks find it difficult to grow. This is in line with current political sentiment surrounding the Australian banking industry. Prior to the GFC, significant inroads were being made to redress these imbalances. However, the depth and breadth of the GFC caused somewhat of a flight to safety in customers, which in turn impeded the reform agenda, which designed largely to support smaller players and increase competition. The current economic climate in Australia once again supports ongoing review and reform.
Open banking is one such reform that aligns with the competition agenda and promises to accelerate innovation.
The two important stages in the open banking reform agenda are:
- Firstly access to data—the focus of the recently announced review, based on the primary assumption that at the end of the day the data belongs to the end customer, who should have the mandate to provision their data to whoever they trust, and
- Secondly, access to accounts—the focus of Payments Systems Directive 2, in particular, the Access to Account (XS2A) provisions that recognize banking innovation in payments have not kept pace with consumer expectation for a technology enabled seamless, frictionless billing and payment customer experience.
Access to data provisions looks to allow customers to share their transaction banking details, facilitating account information service providers (AISPs) to support easier alternate product provider comparison, leading to better-informed customer choice, with the expectation this will in turn lower costs to end consumers. Payment system providers (PSPs) on the other hand are positioning to accelerate the transformation of payments to an increasingly mobile-enabled digital transaction, with the same aim of reducing overall cost by focusing on intermediary network costs associated with legacy technologies.
The European market gives us some indication of what the future may look like with the UK Competition and Market Authority (CMA) setting a clear implementation path for open banking reforms with the formation of the OBIE (Open Banking Implementation Entity) to establish and agree on the standards required to support the now widely endorsed open banking principles. Implicit in this reform is the expectation that data privacy and information security issues will be addressed within banking, in much the same way that technology has been deployed to successfully meet the increasingly onerous data privacy requirements across other industries with the inherent heightened risk to data security in the world we live in today—cryptography plays a major role here, as does digital identity and authentication, in solving these challenges. Who holds the keys remains a hotly contested debate with personal privacy issues overlaid with the whole of government security issues also playing into the agenda.
Similar to the role the UK completion authority has asked of the CMA, the EU has asked the European Banking Association (EBA) to establish a similar set of operating standards to support the principles of the EU Payments Systems Directive 2. PSD2, XS2A relates the second stage of open banking described above, when payment system providers (PSPs) are encouraged to offer payment services, through open access to bank account mandates provisioned by bank customers and supported increasingly by monetised, published open banking APIs.
This has far reaching implications for today’s network models, as we move increasingly to platform providers, where secure network services increasingly become an internet-provisioned commodity.
It is likely the recently announced review will find that an independent Australian entity, similar to UK CMA will be required, with the support and commitment of the major banks, to accelerate the outcomes sought. The question then becomes one of how much pain do our banks need to be in before the necessary concessions to participation can be gained. The UK system virtually came to the brink of collapse before the necessary reforms could be accepted. We hope this is not the case where we have the benefit of foresight should we elect to learn from the experience of similar markets overseas.