The lessons for open banking from CCR
Open banking is fundamentally about new business models - rather than data and technology - and consumer education will be key if the framework is to be implemented successfully.
This was the assessment of ARCA executive chair Mike Laing (pictured), in a forward-looking speech at the recent AB+F/Randstad Leaders Lecture in Melbourne.
In his speech, Laing highlighted some of the experiences that the association has taken out from the journey towards comprehensive credit reporting (CCR), and how government and industry can learn from these lessons when developing an open banking framework.
The industry association - whose members include the four major banks as well fintechs and mutuals - led the move towards a CCR regime – currently subject to mandatory legislation in Parliament. One of the biggest challenges for open banking will be around communication and consumer education.
According to Laing, while financial literacy is low, the bigger challenge is communicating to customers the “what’s” and “why’s” of open banking. According to research commissioned by ARCA, while nearly all consumers know the importance of their credit report, most consumers never looked at it and most still have no idea that credit reporting is changing.
“I suspect the same about open banking – recent research about UK consumers suggests over 9 out of 10 hadn’t even heard about open banking – and they’re much further along the path than we are.”
He also had important lessons around communicating consumer benefits. “Our experience with credit reporting is that every consumer benefit we talk about, can be turned into a negative by anyone opposed to CCR.”
Here Laing highlighted challenges with those who focused on worst case scenarios, for example vulnerable consumers would struggle to get access to credit they can’t afford. “Just because open banking is being done in the name of consumers, you can’t assume that consumers will understand that it’s going to benefit them,” he said.
He called for those involved in open banking to ensure that an education program underpins the framework, similar to ARCA’s CreditSmart initiative. He said that it will be industry not government that will lead and fund such initiatives, but this approach will ensure the industry remain on the front foot with communicating the key messages around open banking.
He highlighted New Zealand consumer advocate groups as leading on this issue and who also have a more positive view on CCR. In New Zealand, consumers are encouraged to be transparent about their debts when applying for credit, urging caution to borrowers who may not be able to afford it. “In New Zealand they have a Code of Responsible Borrowing, not just a Code of Responsible Lending.”
The “consent paradox”
Another challenge for open banking is around its consent-based model which brings with it the “consent paradox”. This was most recently revealed in the privacy breach with Facebook.
“There’s a paradoxical relationship between giving consumers more control over their information and their willingness to share information – and research has shown that this can be manipulated.” He highlighted a major research study in 2015 that found a power imbalance between consumers and businesses around consent.
“The consent game is biased in favour of business. We know more about the rules than the average consumer”.
This will have implications for open banking, given that the framework will result in a business model where consent is required as a condition of service. For example, under the new regimes of CCR and open banking, a credit provider could access credit reporting by right, and also require open banking consent from a consumer giving them access to a lot more data, including data they have by law been explicitly excluded from accessing via credit reporting.
The example highlights that consent and service are tied together. For Laing the questions emerge around whether the consent being asked is necessary for just the service the consumer has signed up for or is it for something broader and whether the consumer understands this.
In its submission to open banking, ARCA argued for standardised use cases around consent to be developed. Laing added that this makes a lot of sense in the early phases of open banking.“We need to address up front issues such as the ones I’ve raised around the control paradox, and consent as condition of service.”
In the same way as the credit reporting industry decided to restrict competition around supply of data in order to maximise competition around its use, Laing argued whether open banking should encourage competition around expertise in gaining more unlimited consents from consumers?
“In my view we need to have this discussion now, and not wait for problems to emerge later. Open banking is more about business models than it is about technology – we need to talk about the detailed business model up front.”
For the full report see the July edition of AB+F magazine