Open banking – what is it and how could it help you?
A new way to quickly and securely share your banking data could help you take more control of your finances.
With all the news about Covid last year and its financial impact – interest rates, loan repayment pauses, financial relief packages, government building incentives and so on – you may have missed the news that open banking has begun in Australia. Open banking promises to be a game-changer in the way we can all better manage our money.
So what is open banking? Let me shed some light on what it is and what it means for you.
In essence, it’s a simpler and more streamlined way to share your banking data with approved lenders and financial technology companies, which could in turn help you find a better deal on your banking products and switch lenders more easily.
WHAT IS OPEN BANKING?
As technology develops, transactional banking is becoming almost exclusively online and ‘tap-and-go’ transactions are replacing cash. As open banking comes into play, you will be able to get a far clearer picture of how you spend and manage your money.
Thanks to online features, open banking will allow you to share your transaction history, account balances and income information with third parties that have been accredited by the Federal Government’s ACCC (Australian Competition and Consumer Commission).
These accredited and authorised organisations can be banks and lenders, financial technology companies who provide tools such as a budgeting app and down the track, potentially brokers like us. And you can control which party has access to your data and how they can use it.
This means that applying for a new account or signing up to a new credit card will be easier. Without open banking, you need to take the time to gather transaction history, evidence of income and ID information, and then submit it. With open banking you can send this information online in a few moments, potentially saving a significant amount of time and hassle.
It’s all about giving consumers control over their data, so you’ll be able to give consent to share information and then amend that consent when you want to. You’ll also be able to give more than one type of consent and provide, withdraw or amend these at any time.
As with all new technologies there have been some teething problems causing a few delays. As of the end of December 2020, only the big four banks could share this data between them. They are behind in providing some features to consumers, such as showing data for closed accounts. This should be fixed by the end of February.
As well as making it simple to share data between banks, other organisations in the financial sector can make more of your data available to help you get a better picture of your finances and give you more control. Two examples are comparison sites and budgeting apps. With your data, they’ll be able to provide more appropriate recommendations and advice for your individual position, financial needs and spending habits.
A HOME LOAN APPLICATION GAME CHANGER.
When applying for a home loan, supplying some of the details on your spending can only be estimated at best. This can lead to inaccuracies and not allowing lenders to get a true picture of your finances.
With the rollout of open banking, it will mean you will be able to supply all this information with just a few clicks from all your accounts. This includes transaction accounts, term deposits, home loans, investment loans, personal loans, joint accounts, closed accounts, direct debits, credit cards and more. It’s comprehensive, accurate and up to date.
MAKING THE SWITCH.
Even if you find a loan that might be more appropriate for you, many people don’t make the switch because it feels too difficult. The thought of changing all their direct debits is so inconvenient they stay with their current lender, which could be costing them more.
Open banking embraces new technology and has the potential to make this a lot faster and hassle-free, making the idea of switching to a new loan much more appealing.
A BOOST FOR BUSINESS.
It’s not just for individuals looking for better deals on loans. The rules have recently been updated to allow businesses to share their data and shop around for better services and products. There’s no doubt that having greater flexibility and making it easier to switch when you find a product that can help you save, or even make, more money, is good for business.
IS IT SAFE AND SECURE?
Open banking isn’t just about making it easier to share data, it’s about making it more secure. You don’t have to reveal your username and password to give access to your accounts, as can happen now.
Rest assured, the rules and regulations for open banking have been developed by the ACCC – the Government’s consumer and corruption watchdog – which requires a strict and comprehensive approval process to satisfy it that a bank or organisation has all the right security and privacy measures in place to safeguard your data. At the end of February, this rule-making function will be passed to the Treasury Department.
While open banking might make it easier to find more appropriate options, comparing and understanding the pros and cons to decide which one is right for you is still tricky. As your broker, we’re always here to make sure you can identify the loan that’s the most appropriate for you.
Open banking may be able to tell you about your finances right now, but it still can’t take into account your goals and what your life may look like in two, five or ten years’ time. Things like planning for a bigger family, downsizing as the kids move out, and growing and diversifying your property investments all need to be considered and factored into any decisions. And that’s where we can help. If you want to have a chat regarding your individual circumstances, and how they influence your home loan situation, please get in touch.
Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. Information in this article is correct as of the date of publication and is subject to change.