The term ‘Open Banking’ has become one of the major buzz word culprits over recent years, and it’s not surprising when you consider how significant it is, yet also how broadly it can be applied. In other words, we wouldn’t blame you if you’re thinking “What on Earth is Open Banking?” So let’s break it down.
The essence of Open Banking is about giving a consumer control over their own financial data. A pretty decent sentiment: let’s centre the banking world around the consumer rather than the banks. But how does this work?
First of all, imagine all the data your bank holds about you and how you spend your money. Traditionally, you didn’t have much of a say on what your bank should do with that data. And if you wanted to share your data with another party of your choice (e.g. your accountant, mortgage broker, etc.), you’d have to manually download your bank statements and email them, or even worse, print them out and hand them in personally *gasp*!
Enter Open Banking.
Now, if you request your bank to share your financial data with someone of your choice, they are required to do so automatically and securely via Application Programming Interfaces (API’s). In Australia, the Government plays a key role to oversee this data sharing mechanism. Not only does this mean your data is more protected and more traceable than other sharing (e.g. the good old file share to the wrong email address), but it also opens the doors to endless benefits for you and your finances. Basically, all that valuable data that your bank has can now be used by other companies to give you personalised services that add value to your life.
My bank sharing my financial data? Seems dodgy.
It’s important to keep in mind that Open Banking is designed to help you, rather than your bank. Because of this, no data will ever be shared without your explicit consent (aka “opting in”). Open Banking will also never ask you for your banking password, unlike similar services called “screen scraping”. No one other than you or someone you share a joint account with can authorise the sharing of your data, and you will always have visibility over what data has been shared. You can also stop your data from being shared with a particular recipient, and request them to delete any of your data they currently have.
In terms of the actual data sharing mechanism used in Open Banking, there are security measures built into the ecosystem that in fact make it more secure than the current alternatives (e.g. emailing, printing, screen scraping). In Australia, anyone dealing with your raw data (including the company with whom you’ve chosen to share your data) also has to go through a rigorous accreditation process with the Government, specifically, the ACCC. This way you can trust that they have adequate security controls and practices to handle your data.
Okay, I get what Open Banking is, but why should I care about it?
Whether you’re a consumer or a business, Open Banking unleashes the power of real data to provide a meaningful experience. Okay, that sounded pretty sales-speaky. Allow us to explain:
Managing your finances means something different for everyone. The one-size-fits all approach may work when you’re buying a beanie, but when it comes to things like managing your finances, applying for loans and choosing the best provider for you? Not so much.
For example, an app that helps you set your financial goals and create a budget to meet those goals will be much more valuable if it’s been personalised to your situation. It could even recommend the best banking products for you to use based on your activity. While you’re looking for the cheapest mortgage rate out there, someone else might be better off in a high interest savings account. So when an innovative company with great products can use your real data, it’s now suddenly relevant to your specific situation.
This means they can help you find the best products, save better, avoid unnecessary fees and provide personalised insights. In other words, more $$ in your pocket.
If you’re a business:
We don’t need to tell you that if your customers aren’t getting a simple, easy experience that is relevant to their situation, they aren’t sticking around for very long. By using your customer’s data at the right time and in the right way, you can transform their experience. For example, rather than getting your customer to manually download and send you their bank statements every month to do their accounting, you can cut this down to a few clicks to set up automated and secure data collection with their consent.
The right data can also be used to minimise expensive and manual processes, which can help you beat the competition by cutting your costs and by improving the customer satisfaction with shortened wait times. There are so many ways you can use Open Banking but check out our Use Cases to see some of our favourites.
This is all making sense. I’ve heard the term “CDR” a lot too. What does that mean?
Good question! The Consumer Data Right (CDR) is Australia’s specific version of Open Banking (which is a global concept). But it’s also more than that. It will cover both energy and telecommunications sectors rather than just banking. Again, the whole idea being to put you in control of your own data. While some countries are implementing Open Banking in a market-led way, Australia has taken a regulatory-led approach. This means the Australian Government has introduced the CDR so banks and other ‘Data Holders’ have to participate and share data if a consumer asks them to, while also specifying how the whole process should work to ensure your data is protected. While the CDR is all about data sharing at the moment, it will get even more exciting when it supports ‘action initiation’. This means that not only can you share your data with companies of your choice, but you can make decisions and changes to your finances without having to log back into your bank (or multiple banks). Because let’s face it, we’re all becoming less and less tolerant to switching between apps on our phones these days.
We hope this helped! Feel free to reach out if you have any questions on Open Banking or how Skript can help you leverage it.