Brave new world of banking

When open banking was introduced in 2020, it promised great things. Where is it now and what are the next steps?

- CHRISTOPHER NIESCHE

Giving bank customers access to their own transaction data and allowing them to share it with other banks or fintechs was supposed to foster greater competition in banking by helping consumers get better deals.

This promise hasn't yet come to fruition, but proponents believe open banking's potential will soon be realised.

It is part of the recently introduced Consumer Data Right (CDR), which gives customers the right to access and use data about their transactions in a range of sectors. Consumers already have access to their banking data; access to energy data from electricity and gas companies is currently being rolled out; and non-bank lending will follow. Other possible sectors to be included in the CDR include phone and internet providers and superannuation.

Companies have traditionally carefully guarded their customer data, even from customers themselves, because it is valuable competitive information and the CDR aims to force them to share.

In open banking, a bank customer can give an accredited bank or fintech access to their transaction data from their accounts, such as savings accounts and term deposits, and from their home and personal loans.

The data includes income and payments, interest rates on loans and savings, joint accounts, closed accounts, direct debits, scheduled payments and payees.

The accredited bank or fintech then requests the data from the bank and receives it through an API, a computer program that can provide access to the data but not to the bank's wider IT systems.

There are currently two main uses for open banking - for money management and for lending, says Simon Docherty, chief customer officer at fintech Frollo.