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Can an open data regime meet what consumers expect?

Analysis | 19 September 2018

Valentyn Panchenko

Professor, Head of School

Easier price comparison is just one gain from new legislation

In less than a year, Australian consumers will gain unprecedented access to their own banking data.

On the face of it, this may not sound significant – we can look up our own transaction records after all – but it has the potential to change the way banking operates and is the first step in establishing a consumer data right in Australia.

Known as open banking, customers will for the first time be able to access their banking data and share it with a third party.

Initially, this will open the way for price comparisons. A consumer could ask their bank to supply their transaction, mortgage and credit card data to another bank or a fin-tech, which would then analyse the data and see if it could offer a better deal.

Australia's open banking regime will start in July 2019, when major banks will have to give customers data on their credit and debit card, deposit and transaction accounts. Mortgage data will be available from February 2020 and the remaining data in July 2020.

Smaller banks will have an extra year to comply with each step.

The government envisages extending the consumer data right to telecommunications and energy retailers to allow similar competition, but Rob Nicholls, a senior lecturer in the school of taxation & business law at UNSW Business School, envisages it extending further, driven by consumer demand.

"Why shouldn't I expect the same thing from my supermarket? Why shouldn't I expect the same thing from my university?" he asks.

"This sort of consumer empowerment means that it doesn't matter what line of business you're in, you're still going to actually have to get ready to respond to the changing expectation of consumers."

'After a while, they’ll decide to cut out the intermediary by just giving their customers the best deal they can'
ROB NICHOLLS

Complex comparisons

The government has yet to release all of the detail around its proposed open data regime, but there are pointers in the government-commissioned Review into Open Banking, by King & Wood Mallesons partner, Scott Farrell.

The Farrell Review, as it has become known, suggests that the regime include transaction data only and should exclude value-added customer data such as that which results from insights, analysis or transformation by the financial institution. Aggregated data sets and Know Your Customer data should also be excluded.

Nicholls says this approach of striking a balance between enabling consumers to access their data but allowing businesses to keep the proprietary data they have created themselves will ensure that companies aren't deterred from data-driven innovation.

While consumers can already in theory shop around to get a better deal from a competing bank, in reality it is often too difficult. It is time consuming and because financial products can be complicated, it can be difficult to compare like-for-like.

The new regime reduces the search cost.

A Commonwealth Bank (CBA) customer may, for instance, authorise ANZ, NAB, and Westpac to access their data and see if they can do a better deal. The best outcome for the CBA and the consumer would be if the other banks came back and said they can't make a better offer, according to Nicholls.

He says part of the reason consumers feel ripped off by their bank is not necessarily because the bank is overcharging them, but because they are unable to do the complex comparison needed to demonstrate they are getting a reasonable deal.

Allowing consumers to carry out comparisons may at first glance seem a threat to the banks, particularly if they start competing more vigorously on price. But Nicholls doesn't think so.

"Once banks have the ability to do this complex comparison, then the logical thing for the banks themselves to do is [make] that comparison effectively for each consumer. Initially, they won't. They'll do it for each consumer who downloads their own data," he says.

"But, after a while, they'll decide to cut out the intermediary by just giving their customers the best deal they can."

'The effect of getting your customers to stay with you because you offer them the best deal is a reduction in customer acquisition and retention costs'
ROB NICHOLLS

Write access

Valentyn Panchenko, a professor of economics at UNSW Business School, says open data has the potential to move the present status quo of banking, possibly by increasing crowdfunding and substituting traditional banking services.

For instance, someone seeking credit or a mortgage could use a platform to share their financial details, credit history and see who was prepared to lend them money and at what cost.

The open banking regime that was introduced in the UK goes a little further than Australia's, in that it allows accredited third-parties to initiate payments on the customer's behalf, known as write access.

Nonetheless, the Farrell Review states that allowing write access should be considered once the earlier aspects of open banking have been successfully implemented.

"Write access creates further opportunity for Fin-Tech and other businesses to create innovative services," the review states.

The introduction of this second aspect of open banking would pave the way for bigger changes, says Panchenko. Consumers could make voice-activated payments when they order something online, or even use fingerprint or face recognition for payments anywhere without the need to enter their payment details.

Another potential use is for a disruptor to provide a service that is constantly using the consumer's data and checking to see if they could get a better deal.

And write access could make switching banks a much easier process. In fact, Panchenko says consumers could hand over their banking management to a trusted supplier which could automatically switch them if a better deal arises.

One view about the potential of open banking is that it could fundamentally change banking, leading to 'platform banks' where consumers use their data to seek the best priced services from a range of financial institutions rather than sticking with a single bank.

But Nicholls says the extent to which intermediaries enter the market depends on the response of the incumbent. If the banks do nothing more than comply, that will create space for the arbitrager.

Responsive and proactive

If the banks acknowledge the potential for disruption and make sure they retain customers, they may not be so badly affected, and may even increase their profits.

"The effect of getting your customers to stay with you because you offer them the best deal is a reduction in customer acquisition and retention costs. This is swings and roundabouts, but your cost base will change as well," Nicholls says.

He likens it to the introduction of telephone number portability 17 years ago, which created fears phone companies would lose customers because they would no longer have to surrender their mobile phone number if they changed telcos.

Nicholls says in the lead up to the change, the telcos improved their service offering and this increase in competition actually accelerated the take up of mobile phones.

Nicholls and colleague Pamela Hanrahan, a professor in the school of taxation and business law at UNSW Business School, are also doing research into data governance in the lead up to open data, beyond just relying on the regulatory backstops that govern data breaches.

They are trying to ensure that businesses have an understanding of what the consumer expectation will be and be in a position to be responsive and proactive about it.

"It's how do you come up with a governance regime that works particularly for medium and large businesses that's focused on facilitating data governance while, at the same time, making sure that their consumers don't think their use of data is creepy because, ultimately, that's the real test," Nicholls says.

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<h1>Can an open data regime meet what consumers expect?</h1>

<figure><img src="https://assets-us-01.kc-usercontent.com:443/4df0558d-5779-0012-00f2-b3fa06d6c950/a6c02abb-5f28-4d33-971f-219f630c4a98/iStock-1020456586.jpg?w=1320" alt="open banking" /><figcaption>open banking</figcaption></figure>
 In less than a year, Australian consumers will gain unprecedented access to their own banking data.
On the face of it, this may not sound significant – we can look up our own transaction records after all – but it has the potential to change the way banking operates and is the first step in establishing a consumer data right in Australia.
Known as open banking, customers will for the first time be able to access their banking data and share it with a third party.
Initially, this will open the way for price comparisons. A consumer could ask their bank to supply their transaction, mortgage and credit card data to another bank or a fin-tech, which would then analyse the data and see if it could offer a better deal.
Australia's open banking regime will start in July 2019, when major banks will have to give customers data on their credit and debit card, deposit and transaction accounts. Mortgage data will be available from February 2020 and the remaining data in July 2020.
Smaller banks will have an extra year to comply with each step.
The government envisages extending the consumer data right to telecommunications and energy retailers to allow similar competition, but Rob Nicholls, a senior lecturer in the school of taxation & business law at UNSW Business School, envisages it extending further, driven by consumer demand.
"Why shouldn't I expect the same thing from my supermarket? Why shouldn't I expect the same thing from my university?" he asks.
"This sort of consumer empowerment means that it doesn't matter what line of business you're in, you're still going to actually have to get ready to respond to the changing expectation of consumers."
<blockquote>'After a while, they’ll decide to cut out the intermediary by just giving their customers the best deal they can' ROB NICHOLLS</blockquote>
<h4>Complex comparisons</h4>
The government has yet to release all of the detail around its proposed open data regime, but there are pointers in the government-commissioned Review into Open Banking, by King & Wood Mallesons partner, Scott Farrell.
The Farrell Review, as it has become known, suggests that the regime include transaction data only and should exclude value-added customer data such as that which results from insights, analysis or transformation by the financial institution. Aggregated data sets and Know Your Customer data should also be excluded.
Nicholls says this approach of striking a balance between enabling consumers to access their data but allowing businesses to keep the proprietary data they have created themselves will ensure that companies aren't deterred from data-driven innovation.
While consumers can already in theory shop around to get a better deal from a competing bank, in reality it is often too difficult. It is time consuming and because financial products can be complicated, it can be difficult to compare like-for-like.
The new regime reduces the search cost.
A Commonwealth Bank (CBA) customer may, for instance, authorise ANZ, NAB, and Westpac to access their data and see if they can do a better deal. The best outcome for the CBA and the consumer would be if the other banks came back and said they can't make a better offer, according to Nicholls.
He says part of the reason consumers feel ripped off by their bank is not necessarily because the bank is overcharging them, but because they are unable to do the complex comparison needed to demonstrate they are getting a reasonable deal.
Allowing consumers to carry out comparisons may at first glance seem a threat to the banks, particularly if they start competing more vigorously on price. But Nicholls doesn't think so.
"Once banks have the ability to do this complex comparison, then the logical thing for the banks themselves to do is [make] that comparison effectively for each consumer. Initially, they won't. They'll do it for each consumer who downloads their own data," he says.
"But, after a while, they'll decide to cut out the intermediary by just giving their customers the best deal they can."
<blockquote>'The effect of getting your customers to stay with you because you offer them the best deal is a reduction in customer acquisition and retention costs' ROB NICHOLLS</blockquote>
<h4>Write access</h4>
Valentyn Panchenko, a professor of economics at UNSW Business School, says open data has the potential to move the present status quo of banking, possibly by increasing crowdfunding and substituting traditional banking services.
For instance, someone seeking credit or a mortgage could use a platform to share their financial details, credit history and see who was prepared to lend them money and at what cost.
The open banking regime that was introduced in the UK goes a little further than Australia's, in that it allows accredited third-parties to initiate payments on the customer's behalf, known as write access.
Nonetheless, the Farrell Review states that allowing write access should be considered once the earlier aspects of open banking have been successfully implemented.
"Write access creates further opportunity for Fin-Tech and other businesses to create innovative services," the review states.
The introduction of this second aspect of open banking would pave the way for bigger changes, says Panchenko. Consumers could make voice-activated payments when they order something online, or even use fingerprint or face recognition for payments anywhere without the need to enter their payment details.
Another potential use is for a disruptor to provide a service that is constantly using the consumer's data and checking to see if they could get a better deal.
And write access could make switching banks a much easier process. In fact, Panchenko says consumers could hand over their banking management to a trusted supplier which could automatically switch them if a better deal arises.
One view about the potential of open banking is that it could fundamentally change banking, leading to 'platform banks' where consumers use their data to seek the best priced services from a range of financial institutions rather than sticking with a single bank.
But Nicholls says the extent to which intermediaries enter the market depends on the response of the incumbent. If the banks do nothing more than comply, that will create space for the arbitrager.
<h4>Responsive and proactive</h4>
If the banks acknowledge the potential for disruption and make sure they retain customers, they may not be so badly affected, and may even increase their profits.
"The effect of getting your customers to stay with you because you offer them the best deal is a reduction in customer acquisition and retention costs. This is swings and roundabouts, but your cost base will change as well," Nicholls says.
He likens it to the introduction of telephone number portability 17 years ago, which created fears phone companies would lose customers because they would no longer have to surrender their mobile phone number if they changed telcos.
Nicholls says in the lead up to the change, the telcos improved their service offering and this increase in competition actually accelerated the take up of mobile phones.
Nicholls and colleague Pamela Hanrahan, a professor in the school of taxation and business law at UNSW Business School, are also doing research into data governance in the lead up to open data, beyond just relying on the regulatory backstops that govern data breaches.
They are trying to ensure that businesses have an understanding of what the consumer expectation will be and be in a position to be responsive and proactive about it.
"It's how do you come up with a governance regime that works particularly for medium and large businesses that's focused on facilitating data governance while, at the same time, making sure that their consumers don't think their use of data is creepy because, ultimately, that's the real test," Nicholls says.

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