The federal government will be introducing an open banking regime in Australia, hoping to transform the way customers interact with banks and the banking system.
In order to develop the regime, the government's open banking review has published an issues paper that calls on representatives from the banking, consumer advocacy, and fintech sectors, as well as others, to submit proposals on the most appropriate model and the best way to implement such a regime.
The Review into Open Banking in Australia: Issues Paper describes open banking as giving customers greater access to, and control over, their own banking data.
The issues paper [PDF] draws a distinction between open banking and open data, with the former enabling the customer to direct that they, or elected third parties, be provided with "pre-determined parts of their banking data in a secure environment and in a prescribed way, so that it can be used to offer them new or better services".
Such services are described as more competitive banking products and better personal financial management, accounting, tax, and budgeting tools.
For those reasons, the government said open banking promises substantial benefits for competition, innovation, and productivity from within the financial services sector in Australia, which is largely dominated by four major banks which combined have significant pricing power and higher than average returns on equity and large market shares.
They also hold a 95 percent share of the entire Australian finance industry.
"Better and more cost effective data access has the potential to decrease barriers to entry for new providers and to incentivise existing providers to bring new offerings to market," the paper explains.
"Improved data availability and lower costs for receivers of data may provide opportunities for innovators to develop: New banking or related services (e.g. risk mitigation services); new non-banking services using the data (e.g. analysis of spending behaviour); or improvements to existing non-banking services (e.g. better connections with accounting software)."
The paper concedes there will be significant costs and risks associated with implementing change in the highly-regulated banking industry that need to be weighed up against the potential benefits.
The government is expecting financial services players to incur compliance costs, noting also some institutions may miss out on opportunities if customers choose to capture the value in their data for themselves.
According to the government, the review will examine what data should be shared, and between whom; how data should be shared; how to ensure shared data is kept secure and privacy is respected; the regulatory framework needed to give effect to and administer the regime; and the timeliness, roadmap, and costs of its implementation.
Treasurer Scott Morrison last month announced the government was seeking advice from law firm King & Wood Mallesons on how to boost competition and innovation in the country's financial services sector.
The measure, announced during the 2017-18 federal Budget, is centred on giving Australians greater access to their own banking data. According to Morrison, it has the potential to transform the way Australians interact with the banking system, touting it as a measure to empower consumers through open banking.
"Better informed customers will put pressure on the financial services sector to become more efficient, affordable, innovative, and competitive," he added on Thursday.
By 2018, banks in the United Kingdom will be required to open up their APIs to enable consumer data to be accessed by competing banks, startups, and other financial institutions -- providing the consumer consents. This is a move the Australian House of Representatives Standing Committee on Economics is eager to see implemented in Australia.
A report from the committee, tabled in November, recommended that banks be forced to provide open access for third parties to customer and small business data by July 2018.
The data would be wrapped in security and privacy protections and would include information on a customer's transaction history, account balances, credit card usage, and mortgage repayments.
Throughout the banking probe, committee chair, Federal Member for Banks David Coleman, touted the initiative as an important measure that not only provides more control to the consumer, but one that has the potential to make a strong contribution to the country's economic growth.
FinTech Australia, the body representing Australia's fintech industry, welcomed the release of the issues paper, with CEO Danielle Szetho saying it provides further clarity about key issues that need resolution in order to proceed with such a reform.
In a statement, Szetho said FinTech Australia is interested in further discussing the possibility of a phased introduction of the regime to ensure its timely implementation.
"We are also keen to further explore the paper's option to create banking industry-specific data legislation, rather than tying open banking reforms to a broader and more complicated whole-of-government resolution on data issues," she explained.
"In short, the Australian fintech industry stands ready to support the speedy introduction of a safe and secure open banking regime which delivers customer empowerment and a stronger fintech industry."
Submissions close on September 22, 2017.