The leaders in open banking

  • By Christine St Anne

The United Kingdom and China are leading the world in open banking despite key differences in their regulation and consumer sentiment.

A report by Ernst & Young tracked the progress of open banking across the globe including Australia based on four criteria including the regulatory environment; innovation environment; consumer sentiment and adoption potential.

Ernst & Young’s Open Banking Opportunity Index noted that while UK had a mandated model and China’s was more market driven, both countries share strong consumer adoption potential and innovation environments.

“While the UK consumers still have doubts about security and data protection, customers in mainland China are more comfortable opening up their banking data in exchange for better services,” the report revealed.

Australia ranked number five in the Ernst & Young index. In comparison to the UK and China markets, Australian consumers were positive but cautious about open banking.

Australian consumers tend to be early tech adopters but also have conservative attitudes toward privacy and security. Trust around security of data came through as a key concern.

Here addressing security will be key.

According to the Ernst & Young report, Australians ranked ninth on sharing transaction data with fintechs; they jumped to fifth when asked the same question, but with a further assurance that there would be effective controls over the security of the data exchange.

RFi Group research highlights that consumers across the globe see the benefits of open banking.

These benefits include speeding up new product applications and approvals; access to more reliable, tailored and personalised financial advice and ease in finding the best deals for new products and services.

The RFi Group research also found that India and China leading in consumer sentiment – 26 per cent and 18 per cent respectively see the benefits of sharing their data.

In comparison, around 12 per cent of consumers in Australia are interested – consistent with the global average.

RFi Group research director Kate Wilson said the rapid uptake of fintech products and services in China (Alipay) and India (Paytm) is the likely reason behind consumers in these markets being more open to sharing their data with third-party providers.

Meanwhile, in Australia, there is cautious interest in open banking.

“RFi Group research also suggests that Australians would be hesitant to share their data without guarantees and further information around who would control their data and how it would be used,” she said.

A single regulatory recipe for success?

Ernst & Young Oceana financial services technology leader Mike Orman said that although security is important, the approach to open banking needs to be balanced.

“Data security is important but so too is having a compelling set of offerings. If all Australian financial institutions do is comply [with the regulation] it will be pretty much a case of the tree falling on the woods and no one heard,” Orman said.

“The success of open banking will be in part driven by having innovative and interesting offers in the market otherwise it won’t take off.”

The Ernst & Young report found that there is “no single regulatory recipe for open banking success”.

The report highlighted the key differences in markets. In the EU, the Revised Payment Services Directive (PSD2) mandates banks to share data with third-party providers, once consumers consent.

“UK and German regulators have been the most proactive, with both involved in determining standards for the application programing interfaces (APIs) that twill connect banks and third-part providers,” the report noted.  

In comparison, other countries favour a market-drive approach such as China.  

“Here banks and fintechs are already making significant use of open API’s even though there is no legal mandate to drive this, nor any standards in place,” the report said.

Australia ranked fourth in terms of how supportive its regulatory environment is toward open banking. Although Australia’s regulatory environment is strong, it’s also complicated, with four key bodies responsible for setting the new open banking governing framework.

The UK ranked number one in terms of a supportive regulatory environment.

“What the UK does well is that it also has an open banking implementation entity, not just a regulatory authority but a group responsible for overseeing the implementation of the legislation. It is something that Australia lacks,” Orman said.

Moving forward, Orman said there are two paths that open banking can take. One is the obvious regulated path and the other a more organic approach. The latter is a strategy currently being eyed by the US

“Open banking could happen organically. If it does, this will challenge the idea about whether regulation is factor in its ultimate adoption.”