This was published 4 years ago
Why 'open banking' is so important and what it means for you
By Joel Gibson
Last week was Christmas in July for finance geeks. Not because it's tax time but because of the start of something called "open banking".
After years of build-up and expectation, the big four banks now have to share your information with another bank, a broker or a business if you ask them to, because you have a shiny new "consumer data right".
You could eventually be able to avoid bill shock and be able to change your energy or telco provider and get a better deal at the click of a button.
You just read some disclaimers in their apps or online forms and opt in to authorise them access.
Initially, your data sharing is limited to information about your credit card history, debit cards, deposit accounts and transaction accounts.
However, from November 1, when the next stage of open banking starts, big banks will also be required to share your data on mortgages and personal loans, too.
It is hard to overstate how much excitement this has generated among the banks, lawyers, app developers and bureaucrats.
However, their enthusiasm has been countered by a resounding, collective "Huh?" from consumers. So what? What’s the big deal? Why should I care?
Here’s what the buzz is all about and why it will become crucially important for you in the future.
The past
We don’t switch banks, energy companies, telcos or insurance companies as often as we should, because it’s too hard or there’s too much paperwork or research required.
Estimates of the “lazy tax” Australians pay as a result of not seeking out the best deals and staying with the same service providers range as high as $11 billion a year. This makes those industries less competitive, which over time makes their products and services more expensive.
Open banking is the first step in a new "open data" regime that could help fix that problem.
The present
Just two businesses are currently accredited for open banking and apparently 39 more are expected to jump aboard by September. You will be able to simply press a button in their apps or online forms to authorise them to access your financial data.
Frollo is a personal finance app that is already using the instantaneous access to data to help 100,000 users track their spending and meet savings goals. Eventually, it intends to also use it to suggest ways for you to save on bills, too, as will other fintech apps, such as MoneyBrilliant, Pocketbook and Finder.
Regional Australia Bank is also using open banking to expedite personal loan applications.
In a test run last week, one customer started a loan application online at 5:40pm “and authorised the secure electronic transfer of 3505 transactions from their bank to us", said Victoria Brown, a spokeswoman for Regional Australia Bank.
"The data was collected in 21 seconds, completing at 5:46pm”.
The data was then automatically analysed, added to the application form and then deleted in less than two minutes. The loan was approved by 8:57pm, Brown said.
The future
It’s 2025 and open banking has expanded to become open data and now covers all banks, as well as energy companies, telcos and insurers.
Brokers and apps can tell you in minutes which products are ideal for you from hundreds of options.
People tell old stories about how long finance applications used to take and about the mountains of paperwork involved.
Saving on your electricity bill is now as simple as pressing a button to share your data and then clicking on the plan that is perfectly matched to you. For example, maybe it has a cheaper plan at night, when you use most of your power.
Maybe you have even given a broker or an app the authority to switch products for you when they see a saving, so your bank, energy and telco plans change every year or two – and you hardly have to lift a finger.
You are spending hundreds, maybe thousands of dollars less every year than you used to for the same services.
Finder estimates a typical household could eventually save $8496 a year across home loans, health insurance, savings and credit cards. All those services have become cheaper, too, because of the increased competition that open data has forced upon these industries.
So, that’s the nerdy Nirvana of open data.
In reality, these things always take longer than expected and take-up is patchy.
However, one day in the not too distant future, we might look back on this and see it as the moment when the billing of our essential services switched from manual to automatic and made our lives so much easier in the process.
Joel Gibson is the author of KILL BILLS! The 9 Insider Tricks you Need to Win the War on Household Bills. Catch his segments on TODAY each Wednesday or follow him on Twitter.