Open banking comes of age
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Having more data available that is both transparent and rich will change the game for brokers as the open banking initiative gains momentum
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OPEN BANKING is in the process of revolutionising lending in Australia.
Understanding this new regime and how it impacts the industry and the consumer is key to making the most of the efficiencies and benefits it has to offer all parties in the loan value chain.
“The expectation of consumers to have a lender or a broker who can tap into open banking data is really high and growing rapidly,” says Renee Blethyn, head of broker partnerships at industry technology partner NextGen.
“This is a pivotal moment in the lending industry, and the use of open banking data to enhance the customer experience is going to become the standard moving forward.”
Nextgen is Australia's leading technology provider to the lending industry, pioneering state-of-the-art solutions from loan application through to processing and settlement. It has a company mission of making lending easy by providing lenders, aggregators and brokers with easier and more efficient ways to deliver for their customers.
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“Going forward, these changes give the mortgage broking industry a huge advantage to capitalise on the CDR rules and to utilise open banking data”
Renee Blethyn,
NextGen
To understand open banking at a more granular level, a good place to start is with the basics.
The Australian Federal Government launched the Consumer Data Right on 1 July 2020 with the purpose of providing a trusted framework for data sharing.
The CDR for open banking was only open to customers of the big four banks at first and was limited to the sharing of specified data sets such as deposit and transaction accounts, along with credit and debit cards.
It has now been rolled out to non-major authorised deposit-taking institutions and includes Phase 2 and Phase 3 products, which means financial institutions of all shapes and sizes are required to share customer and product data on everything from savings accounts to investment loans and retirement savings.
Feedback in October last year highlighted the excessive cost and extensive requirements that participants would have to meet. But the lending industry has been quick to respond to the introduction of open banking and the CDR policy, and Treasury has now addressed the initial regulatory oversights and barriers to participation for other players in this space.
On the back of this, the CDR Representative model and the Trusted Adviser model were created.
“Enabling a consumer to share their data via an accredited data recipient [ADR] with their mortgage broker as the Trusted Adviser is a great acknowledgement of brokers as members of a professional class and of the work they do,” says Blethyn.
Indeed, it promises to change the game entirely.
As of the beginning of March, 103 data holders are active in Australia, which represents 98% of all consumer data. There are also 28 ADRs.
The disparity between the number of data holders and data recipients is a crucial point for brokers, because those who have become recognised as Trusted Advisers will be able to utilise open banking data to deliver great consumer outcomes.
“With brokers as Trusted Advisers, they are now set to be at the forefront of participating in this new regime and stand to benefit greatly,” says Blethyn.
“Going forward, these changes give the mortgage broking industry a huge advantage to capitalise on the CDR rules and to utilise open banking data."
“Going forward, these changes give the mortgage broking industry a huge advantage to capitalise on the CDR rules and to utilise open banking data”
RENEE BLETHYN,
NEXTGEN
“Almost two thirds of the industry is intending to utilise open banking within their processes during the course of this year,” says Blethyn.
Brokers see the potential of open banking to enrich the loan application process by offering enhanced financial data verification, as well as improving the customer experience with better onboarding processes.
“We know the vital role that the broker industry plays in the care, support and education of consumers when it comes to financial management," says Blethyn. "With brokers the preferred channel of choice for consumers, they’re in the best position to leverage open banking to help their clients get fit for finance and to advocate for the best outcome for borrowers.”
The ability for brokers to evidence income, expenses and loan commitments, rather than having to collect such information separately and categorise it themselves, will significantly streamline the application process.
“Open banking offers more data, transparent data, and data that can empower brokers to better serve their clients and improve not just their clients' experience but their financial wellbeing.”
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Copyright © 1996-2022 Key Media, Inc.
Companies
People
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About us
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News
MORTGAGE INDUSTRY
BEST IN MORTGAGE
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UK
Copyright © 1996-2022 Key Media, Inc.
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IN Partnership with
Open banking phases
Savings accounts, call accounts, term deposits, current accounts, cheque accounts, debit card accounts, transaction accounts, personal basic accounts, GST and tax accounts, credit and charge cards
1
PHASE
Home loans, personal loans, mortgage offset accounts
2
PHASE
Business finance, investment loans, lines of credit, overdrafts, asset finance, cash management accounts, farm management accounts, pensioner deeming accounts, retirement savings accounts, trust accounts, foreign currency accounts, consumer leases
3
PHASE
Open banking and the CDR framework enables consumers to access and share their financial data with accredited third parties. Consumers have the choice of whether to share their data or not, full visibility of who it is being shared with, and the ability to nominate the time frame in which data will be shared and for what purpose.
The advantage created for brokers and lenders is access to much richer data.
“The CDR and open banking offers more reliable and up-to-date financial information compared to alternative sources of financial data sharing,” says Blethyn.
“This is a pivotal moment in the lending industry, and the use of open banking data to enhance customer experiences is going to become the standard moving forward”
Renee Blethyn, NextGen
Open banking presents opportunities for innovation in all parts of the loan value chain, and that includes where brokers can innovate within their own businesses. It offers opportunities for the lending process to radically change from end to end – from information gathering to decisioning – as well as to enable better ways to service and reach customers.
Brokers play a central role in supporting and educating consumers when it comes to financial management, and with open banking set to become a key means of gathering information, the topic cannot be skirted for long in conversations about lending going forward.
There is strong appetite in the banking industry to get on board.
Open banking timeline
2018
2019
2020
2021
2022
The government agrees to implement a Consumer Data Right
9 May 2018
Source: Australian Banking Association
Source: Australian Banking Association
Major banks provide product reference data on Phase 1 products
1 Jul 2019
Major banks provide product reference data on Phase 2 products
1 Feb 2020
Opening banking begins with major banks. Major banks provide product reference data on Phase 3 products, plus account and transaction data on Phase 1
1 Jul 2020
Deadline for all other banks to provide Phase 2 and 3 product reference data
1 Oct 2020
Deadline for major banks to provide account and transaction data on Phase 2 products
1 Nov 2020
Other banks open banking ready. Deadline for other banks to provide account and transaction data on Phase 1 products
1 Jul 2021
Deadline for other banks to provide account and transaction data on Phase 2
1 Nov 2021
Deadline for other banks to provide account and transaction data on Phase 3 products
1 Feb 2022
Access to this rich data in real time and at key stages in the application process – up front, at lodgement and during assessment – will reduce the burden on resources required to assess customer data; drive down costs in terms of acquisition and processing; and significantly improve straight-through processing rates.
“We see that open banking will provide the opportunity to remove friction from the application process, reduce the reliance on supporting documents, lessen the burden on resources required to assess customer data, and radically accelerate the approval process,” Blethyn says.
Educating and supporting consumers who are on board with open banking will also invariably involve their lenders and brokers being able to ring-fence any worries around the issue of trust.
Some people will always have concerns around sacrificing privacy, but Blethyn says consumers should feel confident on this front.
“One of the great things about open banking is the security and the safety of sharing information, because it is regulated by the government.”
Within the CDR there are 13 legally binding privacy safeguards to keep consumers' data secure and protect their privacy. Data holders and data recipients must be able to show they comply with data and security requirements around the protection of information, including robust cybersecurity systems, ongoing testing to ensure data quality and that data is fit for purpose, as well privacy legislation.
To be sure, open banking is still in the process of being rolled out in some of its aspects.
“There's a lot of work to do when it comes to the actual utilisation of the data and getting it in a form that's actually able to be consumed and shared,” Blethyn says.
But 2022 will likely be a watershed period for the initiative.
“We'll definitely start to see some fantastic outcomes for all parts of our industry over the course of this year.”
“Going forward, these changes give the mortgage broking industry a huge advantage to capitalise on the CDR rules and to utilise open banking data”
Renee Blethyn,
NextGen
“Almost two thirds of the industry is intending to utilise open banking within their processes during the course of this year,” says Blethyn.
Brokers see the potential of open banking to enrich the loan application process by offering enhanced financial data verification, as well as improving the customer experience with better onboarding processes.
“We know the vital role that the broker industry plays in the care, support and education of consumers when it comes to financial management," says Blethyn. "With brokers the preferred channel of choice for consumers, they’re in the best position to leverage open banking to help their clients get fit for finance and to advocate for the best outcome for borrowers.”
The ability for brokers to evidence income, expenses and loan commitments, rather than having to collect such information separately and categorise it themselves, will significantly streamline the application process.
“Open banking offers more data, transparent data, and data that can empower brokers to better serve their clients and improve not just their clients' experience but their financial wellbeing.”