It is being described as the most dramatic revolution in the country’s financial services sector since the wave of banking deregulations of the 1980s. Open banking, under which banks are required to enable customers to share their data securely with third parties to accelerate digital change, is scheduled to kick off next year, with the big four in particular required to be ready to let their customers “own” their financial data by 1 July 2019.
Not surprisingly then, open banking was also one of the keenly attended opening topics at Sibos, with a panel session including representatives from Deutsche Bank, Mastercard and Natixis, pondering the implications of the trend.
As the chief digital officer global transaction banking for Deutsche Bank, Thomas Nielsen, put it to Sibos, open banking was a “tectonic shift” bringing both challenges and opportunities to traditional players in the fintech sector.
In Australia, open banking is the first shot in the Government’s legislated Computer Data Right, which is designed to ultimately give Australians greater control over their data, empowering customers to choose to share their data with trusted recipients only for the purposes that they have authorised.
While the financial sector will spearhead the plan, it is envisaged to be eventually rolled out across the economy on a sector-by-sector basis. The energy and telecommunications sectors are next in line after banking.
“It is something that the industry is entering into in a phased approach,” the vice-president of security solutions for Mastercard, Mallika Sathi, told Sibos.
Australia’s Consumer Data Right is but one part of a broader global trend to empower citizens with control over the data. The UK’s largest nine banks, accounting for 90% of the British market, began their own implementation of open banking at the start of this year. The UK model is one the Australian Government says it’s most closely following, with some important differences.
Private enterprise is also seeking to carve a niche within the open data movement. Just earlier this month, world wide web inventor, Sir Tim Berners-Lee, announced he was working on a start-up, called Inrupt, tasked with helping people control their data – by essentially building an “internet of the future”.
Inrupt will achieve this through a platform it dubs Solid, which will let consumers decide how they want to store their data – from contacts, photos, music and calendar events through to fitness and health activity – and control access to that data.
As such, Inrupt, and the raft of government-mandated open data policies – is working to assuage growing public concerns about the sheer mass and detail of individuals’ data that is held on various private servers and ripe to be mined for a whole host of targeted commercial, and sometimes even nefarious, purposes.
In terms of the Australian open banking policy, the aim is that by forcing banks to make their customers’ account and payment data available through secure application programming interfaces (APIs), having access to such data means that customers will be equipped to make more informed decisions about the financial products that are right for them.
Predictably, in the run-up to its implementation all parties involved in the plan have raised concerns over issues such as control, costs, trust and privacy.
Mastercard’s Sathi told Sibos that security and winning costumer trust will be a key challenge for banks as they embrace the trend. “To my mind, security is a very important concept,” she said, adding that it needed to be implemented within the context of “other synergistic initiatives going on in this market, like digital identity”.
Control is also an issue in the Australian context. For example, the UK’s open banking implementation body, the Open Banking Implementation Entity, is funded by a group of the banks involved. The Australian approach, by contrast, has been to give a fully Government-funded department, Data61, to control the implementation. Data61 is an arm of the CSIRO, Australia’s peak Government scientific research and development body and so is fully-funded by the government.
This alone has raised eyebrows over whether a research and development body would be able to leverage the sheer range of skills required to drive both the open banking project in particular and banking innovation in general.
The big four banks themselves have not been backwards in raising their own concerns about the burdens, and risks, open banking will force on them. While all broadly in support of the project, they have been quick, for example, to point the finger at the implementation costs they will shoulder.
Addressing a recent House of Representatives Standing Committee on Economics, Westpac’s chief executive, Brian Hartzer, floated a figure of $200 million as his bank’s initial outlay to make a project happen. “Technology projects, the investment required in these things are enormous. Open banking in the first instance is probably going to cost us somewhere between AU$150 million to AU$200 million to implement because of the complexity of our systems environment,” he said.
He floated the notion that larger banks like Westpac, with a huge range of products and services it needed to prioritise, could be hamstrung in their ability compete with smaller players making the most of their opportunities with open banking. “A smaller bank with less capability to offer to its customers and fewer products will find it easier to do something than a larger bank with a complexity of products and systems like Westpac” he explained.
Deutsche Bank’s Nielsen addressed such concerns at Sibos, acknowledging that “for sure, fintechs have a real opportunity” to eat away at traditional banks’ traditional core businesses. To counter this, he said, banks needed to leverage their traditional strengths. “What the banks can bring to the table is knowledge of global networks,” he said. “Understanding how to do business in multiple regions is a huge advantage for them.”
Senior vice-president for partnerships and interbank relations and head of consumer solutions at Natixis, Fabrice Denele, told Sibos banks could also rely on what he said was one of their biggest assets – their reputations. “Behind the scenes of everything, the biggest asset of any bank is reliability and robustness,” he said.