The Australian Productivity Commission should avoid recommending compulsory sharing of consumer data between financial institutions as it could provide a disincentive to invest in innovation and stifle competition in financial services, the Business Council of Australia has suggested.
In its submission to the government's review into open banking in Australia, the Business Council said mandated data-sharing between competing companies can discourage investment in data-related goods and services by "allowing free riding on a company's existing investment" and add inefficiency and cost to the data holder by "subsidising competitors".
As Australia draws inspiration from the United Kingdom, which is still in the early stages of rolling out access to banking data under a mandated open banking standard, the Business Council of Australia noted there is still no evidence to suggest that such a scheme would increase competition.
"There is no evidence that such intervention is required to encourage competitive markets, since a greater number of substitutes and lower barriers to entry may actually make data less likely to entrench market power than other assets," the council said in its submission.
"In many overseas jurisdictions, competitors have successfully convinced policymakers that mandating access to data by competitors somehow supports the competitive process, rather than distorting it by rewarding rent-seeking.
"Policymakers in Australia should be alert to such arguments, and recognise that there is currently no strong case for mandating access by competitors."
Instead, a data market where consumers negotiate exchange of data and benefits, supported by a "light-touch regulated minimum", would be more effective in achieving the government's objectives of supporting competition in financial services and providing customers with greater choice of financial products, according to the Business Council.
"It would be more effective to regulate consumers' rights for an essential minimum of data that is proportional and meaningful. This would not reduce the amount of data available to consumers, but rather, would allow competitive tension to encourage businesses to supplement the minimum with additional data that adds value for their customers," it added.
The Productivity Commission's indicative definition of consumer data under its proposed Comprehensive Right is "too vague" and "too broad", the Business Council has also said, warning that without a clear definition of consumer data and a clear distinction between identified and de-identified data, there may be "unintended consequences" such as companies "interpreting the law", "cost of testing the law through the courts", and reducing competition.
"The definition should not capture data beyond what is required to efficiently achieve the objective of community confidence ... A broad scope is most concerning in relation to value-added data (data that has been transformed, derived from other data, or otherwise enables a company to offer more to its consumers)," the Business Council stated in its submission, adding that value-added data should not be subjected to the right to transfer.
"Companies currently add value to data to gain a competitive edge, and this requires significant investment. An overly broad definition would capture value-added data and provide it to competitors through the right to data transfer (in practice, having the same effect as mandated access to data by competitors)."
The Productivity Commission's proposed Comprehensive Right has five key components: Ongoing joint right to access data, entitling consumers to access any digital data pertaining to them held by financial institutions and SMEs; a right to request edits and corrections to consumer data, not just "personal information" covered under the Privacy Act 1988; a right to request a data holder to transfer consumer data, with the consumer's explicit consent, to any third party in machine readable form; a right for the consumer to be informed of the trade, use, or other disclosure of its data to third parties; and a right to opt out of a business' data collection activities.
The Business Council has indicated it is not in favour of the proposed Comprehensive Right, arguing that the creation of such a right would only be the most efficient solution if "economic activity is being inefficiently impeded, either because consumers currently have insufficient confidence to transact or it is too costly for them to negotiate satisfactory arrangements with businesses" -- both of which the council believes is not the case.
The council posits that consumers are already "enthusiastically" providing their data and businesses are already making data available, negating the need to mandate data sharing.
The Business Council, however, did not demonstrate in its submission how consumers and businesses are enthusiastically engaging in data-sharing activities, nor did it discuss informed consent -- an issue that all of the big four banks have brought up in their submissions, along with liability in the event of a breach.
The Australian Bankers Association (ABA) said in its own submission that an informed customer consent regime must be a central part of the data sharing process with clear disclosures around what types of data are being accessed and how they will be used.
Additionally, the disclosure mechanism must be designed to ensure customers are properly aware of the terms access and use of their data, the Consumer Action Law Centre (CALC) suggested in its submission.
"[It] is now recognised that disclosure and tick box consents (particularly through terms and conditions or privacy policies) are an ineffective form of consumer protection. Blanket terms and conditions in lengthy legalese can maximise what a business can do with someone's data, whilst minimising their responsibility," the CALC said.
"In fact, one of the defining features of the Financial System Inquiry panel's final report was an explicit shift in focus from consumer protection regulation based on disclosure to one focusing on fair treatment of consumers.
"Implicit in that change is an acceptance that consumers are not necessarily capable of absorbing all of the information presented to them and, even if they do, various cognitive limitations and biases limit the ability of people to make rational choices."
The CALC additionally pointed out that more choice -- an expected outcome of increasing competition in financial services through the implementation an open banking regime -- doesn't necessarily benefit consumers. In an attempt to address information asymmetry, consumers can end up with information overload.
"[There] is significant behavioural research that indicates that greater choice can actually hamper decision-making, and lead to poor consumer outcomes," the CALC said.
"[It has been] found that people may be more likely to make mistakes if they are given 'too much information (information overload), too much choice (choice overload), or too little time to make a decision'. A market with a large number of choices can therefore be just as inefficient as a market with few choices if consumers do not understand what is on offer, cannot easily compare different offers, or are not rewarded for making the effort to search, compare, and switch."
The CALC also warned that open data may affect vulnerable customers -- for example, through predatory lending -- potentially causing more harm than helping them navigate the complexity of the financial system.
"While we are supportive of innovation and competition in the financial system, we have seen 'innovation' used as a guise in the past to justify predatory practices that have led to significant consumer harm. Some 'innovation' we have seen include credit card providers competing on balance transfer offers, rewards points, and loyalty schemes while interest rates remain uncompetitive and high, and payday lenders competing on fast online access to expensive cash," it said.