​House of Reps committee recommends banks open customer data by 2018

The big four banks may soon be forced to open up APIs to competitors if the Australian government actions recommendations made by the House of Representatives Standing Committee on Economics.

The House of Representatives Standing Committee on Economics has recommended that banks be forced to provide open access to customer and small business data by July 2018 to be accessed by competing banks, startups, and other financial institutions.

In its Review of the Four Major Banks: First Report, the committee suggested that the Australian Securities and Investments Commission (ASIC) be charged with developing a binding framework to facilitate this sharing of data, making use of application programming interfaces (APIs) and ensuring that appropriate privacy safeguards are in place to allow such a practice.

As such, the committee wants the government to amend the Australian Securities and Investments Commission Act 2001 and, if required, the Privacy Act 1998 to empower ASIC to develop a data-sharing framework for Australia's banking sector.

To ensure that the banking industry meets its obligations, the committee also recommended that the government amend the Corporations Act 2001 to introduce penalties for non-compliance.

"Enhancing access to publicly and privately held data has the potential to make a strong contribution to economic growth," the report [PDF] states.

"Increased access to financial sector data, as noted by the Productivity Commission, should also intensify competition in the financial sector. This is because markets work best when customers are informed. At present, banks, not consumers, hold the data. This gives banks a significant degree of power."

Throughout the three-day review of Australia's four major banks in October, committee chair Federal Member for Banks David Coleman raised the question of account portability to each of the bank's representatives, citing the United Kingdom regulator's recent move to make this a banking requirement.

Eager to see the practice underway in Australia, Coleman asked the Commonwealth Bank of Australia (CBA), Australia and New Zealand Banking Group (ANZ), the National Australia Bank (NAB), and Westpac that if ASIC had such a mandate to require the opening of data and the opening up of information so as to enable consumers to ditch their bank, whether they would stand in the way or support the move.

"We are supportive of a well-governed process of opening data up more. We are supportive of more competition; we think that it is healthy for customers and healthy for our industry as well," Brian Hartzer, chief executive officer of Westpac, said during the hearing.

The CEOs of all four banks responded in a similar tone and noted that the institutions would need to ensure the opened data is stored, secured, and handed over in a safe and secure way. CBA, however, initially commented that it opposed the practice, citing data security concerns and the misfortune of previous technology projects as its main rationale. The bank was the first to face the committee, however.

Despite the hesitation, CBA CEO Ian Narev confirmed that if ASIC had such a mandate, CBA would work cooperatively and constructively with that process.

"If that were to be the mandate, we would engage very constructively with whomever our elected representatives asked to take oversight of implementing it," Narev said at the time.

"We absolutely would -- in the same way as we have worked very constructively with the Reserve Bank on the building of the New Payments Platform (NPP)."

In September, the RBA confirmed that the new payments platform will allow for near real-time funds to be transferred between bank accounts, regardless of which institution people bank with.

Also addressing the House of Representatives Standing Committee on Economics, RBA Governor Dr Philip Lowe explained previously that all a user will require to perform an "instantaneous payment" with the forthcoming system will be the recipient's email address or mobile phone number instead of the bank account number or BSB.

As a separate recommendation made this week, the economics committee suggested that the government, following the introduction of the NPP, consider whether additional account switching tools are required to improve competition in the banking sector.

"Enhanced data sharing and increased price transparency [is] of little value if it is difficult for consumers to change product providers. Knowing that a better deal exists is worthless if it is too hard to take advantage of," the report says.

"It is therefore critical that efforts to enhance data sharing are accompanied by measures to reduce switching costs. Switching costs, whether they are high or just perceived to be high, can present a significant barrier to competition."

In the report, the committee explained that the big four banks are "extremely dominant" in Australia's financial system. As of September 2016, they collectively held around AU$2.8 trillion in Australian resident assets, which is equal to approximately twice Australia's annual gross domestic product; AU$1.2 trillion in mortgages, or approximately 83 percent of the market; and AU$570 billion in business loans, equating to about 74 percent of the market.

"Their market dominance, coupled with a number of structural features of Australia's financial system, has left them with significant market power," the report says.

For the 2016 financial year, CBA reported statutory net profit after tax of AU$9.2 billion; ANZ posted AU$5.7 billion in statutory net profit, which represented a 24 percent tumble year-on-year; similarly, Westpac experienced a 7 percent profit drop to AU$7.4 billion; while NAB reported a 94.4 percent statutory profit slump to AU$352 million.

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