Build it - but will they come?

It’s fair to say it has been a challenging journey for both banks and regulators as they navigated the complex obligations of the launch of Open Banking and Australia’s Consumer Data Right (CDR), which started in full on 1 July 2021.

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The start date had already been delayed, twice. The four major banks met their data sharing obligations from their revised start date of 1 July 2020. But less than a fifth of the other banks were able to meet their obligations to share data from 1 July 2021, despite the delays. Then there were only 13 data recipients, of which just six were active and only three providing offerings to consumers.

“Despite the shaky start, over three-quarters of respondents… agreed CDR will have a significant impact on their industry sector.”

In fairness, unlike the UK, Australia mandated every bank must participate irrespective of their size, so some challenges were to be expected.

Over the last two years I’ve been asking organisations whether they think CDR would be a Y2K moment (lots of hype for little impact) or an Uber moment (a seismic shock to those sectors designated under the CDR). The response typically varied depending on the audience - larger banks were more likely to see it as a Y2K moment while fintechs and challenger banks thought CDR had the potential to be an Uber moment for the sector.

In Quill Peak’s recent report on the consumer data right, Field of Dreams: Build it and they will come, organisations were asked about the impact they thought CDR would have in their sector.

Despite the shaky start, over three-quarters of respondents strongly agreed (36 per cent) or agreed (41 per cent) that CDR will have a significant impact on their industry sector, with the potential to herald levels of competition and customer switching that haven’t been seen before.

And things have picked up since 1 July. There are now 33 banks registered as data holders, with another 26 who have committed to be ready to start data sharing by 1 November.

The number of data recipients, while still quite small, has grown to 18, with seven of these currently active.

Not surprisingly, most of the Australian accredited data recipients are focused on providing Open Data as a Service – technology and data services to data holders and other data recipients.

By contrast, in the UK and EU there are currently almost 500 third party providers (the equivalent of Australia’s Accredited Data Recipients), a number which has grown by 40 per cent in the last 12 months.

Based on the UK’s experience, it’s likely to also take time for Australian consumers to get confident with data sharing. Despite early predictions as many as 33 million UK customers would sign up to open banking services by 2022, the reality has fallen a long way short of this. In January 2021 there were just 3 million open banking users with little prospect of achieving what is likely to prove to have been an overly-optimistic forecast.

However, things are starting to gain pace in the UK. Consumers are using open banking more as they become more familiar and gain trust. Application Programming Interface (API) call volumes, a measure of the extent to which data is being shared, have doubled over the last 12 months.

There is room for optimism in Australia as well. The good news is there is a pipeline of propositions being developed. Over 90 per cent of organisations surveyed have ideas somewhere in the pipeline, with two thirds of these currently in design, being built or tested, or live in the market.

Currently Australia’s CDR only allows data sharing (also referred to as ‘read access’). In the EU and the UK, organisations are also able to initiate actions – make payments, transfer funds and help customers switch accounts – also referred to as ‘write access’ or, in Australia, ‘action initiation’. Many of the most compelling customer propositions are dependent on this capability.

The recent inquiry into Future Directions for the Consumer Data Right recommended Australia adopt ‘action initiation’. Survey respondents commented this would ‘enable far greater value generation’ and have a ‘much bigger impact’ on consumer participation in data sharing under CDR.

The survey also highlighted a paradox at the heart of Australia’s CDR. Lack of customer data for CDR-enabled products and services was cited as the main barrier to developing propositions which use CDR data.

Organisations are not building propositions which deliver value to consumers because of a perception of a lack of customer demand. Customers are not demanding to share data using CDR because of the lack of valuable propositions enabled by data sharing.

Building on a foundation of trust, data sharing has the potential to improve consumers' experience with applying for or changing products and services. It allows organisations to provide personalised, tailored experiences for consumers. Organisations should not forget people who have changed service provider, or were intending to change service provider, were 50 per cent to 75 per cent more likely to be familiar with open banking than those who were not considering changing provider.

In addition to unlocking customer benefits by enhancing customer experiences and delivering greater value, data sharing also provides organisations with an opportunity to improve process efficiency, reduce costs and create new revenue streams.

The survey shows some of the most exciting new propositions to arrive in market will come from challengers and non-banks. Of the 55 per cent of our survey respondents with CDR propositions currently ‘in design’ or ‘in build/testing’, almost three-quarters of those (71 per cent) were non-banks, including several price comparison groups, fintechs and technology and data providers.

Open banking will be followed by the energy and telecommunications sectors. With a target of a new sector assessed and designated each year open finance may be next, with loyalty schemes and digital platforms also under consideration.

As more sectors are designated, Australia will move closer to realising the original vision of CDR being an economy-wide initiative. The key challenge is whether organisations are innovative enough to create propositions customers value.

Paul Wiebusch is an Associate at Quill Peak

Field of Dreams: Build it and they will come was written by Paul Wiebusch in collaboration with David Giddy of Quill Peak Consulting, Robin Scarborough of Studioworks and Jamie Leach of Open Data Australia

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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