Unpicking the Australian open banking opportunity

In the journey towards widespread global open banking adoption, Australia is cutting a unique path of its own. 

The core difference between open banking in Australia and, say, the UK, is the local government’s top-down policy-led approach through the Consumer Data Right (CDR).

Essentially the CDR gave Australians the right to access not just all their financial data but also their utility, telecoms data and more, over a series of phases in the coming years. 

This groundwork covers a broad scope of financial products, everything from mortgages and personal loans to credit cards and business accounts.

And, after a slow start, momentum seems to be growing as open banking reaches its 2nd birthday.

Two of the country’s largest banks, the Commonwealth Bank of Australia and Australia and New Zealand Banking Group (ANZ), are both expected to launch their first open banking use cases later this year.

Australia’s end goal is clearly far more ambitious than where open banking currently is in Europe—where policymakers are still wrestling over the first step of expanding from banking data to other financial products.

Yet this great ambition brings with it more complexity.

Australia’s state of play

“We have a government that is really playing the long game, in terms of the benefits they're looking for,” says Gareth Gumbley, CEO and founder of Frollo.

“And we have a much richer and deeper data set to work with because of that.” 

Frollo is the Australian equivalent of an Account Information Service Provider (AISP), making it easy for fintechs and banks, like ANZ, to access open banking data and then use it to create products or services.

The hold-up, according to Gumbley, is the lack of accredited data recipients, i.e. those who can ingest the data which the big banks are exposing.

Currently, becoming accredited is a somewhat arduous process; just 12 institutions have managed it in the nearly 12 months since the first phase of open banking began. However, Frollo and others are campaigning for amendments to the CDR to introduce a tiered accreditation, reducing complexity.

Plus, the long tail of smaller Australian banks, some 90+ institutions known as data holders, have until this July to launch their APIs, another significant boost for data recipients.

The counterweight to the complexity is the vast opportunity for joined-up financial products which harness a far more significant amount of financial data than what is available in Europe.

As Gumbley puts it, Australia will have a higher consumer dollar value gained by using open banking than the UK, even though the scale of open banking may lag the UK’s 3m users.

Game-changing mortgages

The first place where open banking’s higher value will likely be demonstrated is in Australia’s vast property market, which currently supports around A$1.78 trillion worth of mortgages. 

“We're a big debt country, and we have a lot of mortgages,” is how Gumbley puts it.

“So the biggest opportunity for us is to bring competition into the Australian mortgage marketplace. If we can do that, it’s a really powerful position to be in.”

Frollo might even find itself at the forefront of such an open banking-powered mortgage process, given its 2020 acquisition by NextGen.Net, a leading technology provider to Australian mortgage brokers and banks.

Indeed, Gumbley suspects the first open banking-powered mortgage processes could even start rolling out later this year.

“The winning situation is that consumers have no awareness of open banking; what they have an awareness of is a much better experience,” he says, adding that the winner will be the player that manages to make open banking “invisible”.

“I don't want a new mortgage. I want a house. It’s about how quickly I can get the keys to the house that I want to own. And if we can reduce the touchpoints between origination and loan, then we end up with a high-value experience.”

And the loan or mortgage itself is just the first step; the real opportunity, according to Gumbley, will come from mortgage monitoring.

Australian banks have to provide APIs for all the financial products they have, including mortgages, meaning in the future an integrated broker could then monitor whether a customer’s mortgage is still delivering good value months or even years later.

The future has never been closer

Like many industries in the midst of a technological shift, banks (or ‘data holders’ as they’re known in Australian open banking parlance) were initially resistant to change.

“When I was talking over a year ago to banking CEOs and boards about open banking, it was very much a defend and protect mentality—there was a huge amount of fear around being a data holder and giving up control of that data,” the Frollo CEO explains.

“What we see today is a much quicker transition between, ‘I need to defend’ to ‘what a great opportunity to compete’.”

As industry understanding and adoption grows, Frollo and others are witnessing this mindset shift first-hand.

“I don’t think there’ll be a board in 12 months that's not asking the CEO, what are we doing in open banking?”

And, looking forward, the potential to harness Australian open banking to take financial services and products to the next level is tantalisingly close.

“In the future, we’re moving towards a much more transparent system, where credit products or home loans become as clear and easy to understand as a savings account does today.”

“That's really where I get excited, and probably overly animated,” Gumbley laughs.

“I always want to be in the future Oliver. I never want to be here right now. It’s all going too slow for me!”

Luckily for Gumbley in Australia, the future of open banking is now closer than ever.