After years of inactivity and false starts, Australia has a chance to embark on a real consumer revolution in the use of customer data in the financial services sector.
The government’s commitment in the federal budget to wholesale change in how people control their data and how they use it has profound implications for competition and future economic growth.
Measures that require companies such as the major banks to report data on a mandatory basis, and make it available to authorised organisations and credit providers will enable consumers to seek out better deals based on their individual credit histories.
This will give fintechs an opportunity to compete on a more level playing field.
Taking his lead from Europe, where the second Payment Services Directive, known as PSD2, will require banks to offer data through open APIs – and the UK, with its open banking regime that will allow customers to choose how they do their banking – Treasurer Scott Morrison is keen to make up for lost time.
As much as the US, Britain and the EU are well ahead of us globally in the use of consumer data, the real issue is how much Australians will benefit from the treasurer’s reforms and when.
Progress to date on this front has been disappointing. While Australia legislated to introduce comprehensive credit reporting (CCR) in 2014, efforts to create a more ‘positive’ – as opposed to ‘negative’ – regime use of customer data have been painfully slow.
The weakness has been the voluntary nature of participation in a data exchange system. Without a ‘carrot and stick’ approach where a meaningful penalty is imposed if companies choose not to get involved, it’s not surprising that the players who appear to have the most to lose from sharing information have refused to do their bit and make CCR work.
While the government is to be applauded for getting the Productivity Commission to investigate the difficulties that have emerged, the recommendations in its report to toughen up the regulatory environment – which, in part, prompted the treasurer to act – were, I would argue, predictable.
Fintechs have long pressed for a more open, transparent, collaborative and faster approach to data sharing – and not just for the obvious benefit that start-ups and scale-ups will benefit in a commercial manner, thereby giving them a better chance of succeeding.
Simply, if consumers are to benefit from a competitive level playing field, they need it to be exactly that – level.
Once the trust, security and governance issues are resolved, it should be up to customers to decide how they use their data, the manner in which they share it and how best they will benefit from it. That could mean with a fintech or a traditional credit provider.
Ultimately, it will come down to the better deal that the lender can offer and whether the customer believes – and choses – it to be best for them.
There certainly appears to be an appetite among consumers, if the results of a survey of SocietyOne’s customers in the wake of the budget are to be believed.
Almost 89 per cent of the 480 customers who responded to the poll came out in favour of the government’s plans to give consumers more control of their data so that they can use it to shop around.
Slightly less but still a healthy 72 per cent were clear that financial organisations such as banks should share data so that a borrower’s ability to pay for a loan could be better assessed – one of the principles behind positive comprehensive credit reporting.
And two-thirds, 67.5 per cent, said the government should legislate if banks choose not to comply with the current voluntary rules on credit reporting.
But in a reflection that the public still needs to be convinced that data sharing will spur competition between banks and new lenders such as fintechs, there was a narrower majority in support of that view – 56 per cent said yes, while 27 per cent said no and 17 per cent said it wouldn’t make a difference.
Nonetheless, as a first test since the budget announcements, the results are an encouraging sign that Australians are prepared to take the next steps to make data sharing a reality – as long as they reap real benefits as a result.
The challenge now for the government is not only to meet its ambitious target to introduce a tougher mandatory credit reporting regime early next year, but also to make 2018 the year of ‘open banking’.
As far as SocietyOne customers are concerned, they are saying that Mr Morrison is pushing at an open door. All he needs to do is push harder.
Anna Harper is Chief Financial Officer and Head of Markets at Sydney-based Clearmatch, the world’s first, multi-asset class, fully fractionalised transparent financial marketplace in the cloud. First appeared on Fintech Business: https://www.fintechbusiness.com/blogs/735-it-s-time-for-a-data-revolution