Rebuilding trust through open banking

  • By Ross Sharrott

Following the release of the Royal Commission’s findings in February this year, Australia’s banks have experienced a drop off in their levels of consumer trust and satisfaction.

In this article, Moneytree’s Australia executive director, Ross Sharrott, discusses the opportunity that Australia’s open banking regime will provide for banks to rebuild trust and improve the customer experience.

In the wake of the banking Royal Commission, Australia’s banks are firmly focused on the challenge of redesigning their existing commercial strategies and capabilities to meet tougher regulations and changing customer expectations.

And with the industry also preparing for the transition to open banking, many banks are now focusing on the potential for technological innovation to rebuild consumer trust.

The Federal Government’s initial application of the Consumer Data Right (CDR) is likely to transform the way in which customers receive financial services, empowering customers to direct the sharing of their data with accredited service providers (including banks, fintechs and other third parties).

The new regime was set to commence in July this year, but it has been delayed for a further seven months to allow for an initial pilot period with the big four banks. The initial date had sparked an industry-wide ‘race to compliance’, with numerous challenger banks also preparing for the deadline so they wouldn’t get left behind.

Now, with a bit more time, market participants are also getting a chance to think through the value they can get out of open banking.

 A natural advantage

While much of the commentary around open banking so far has focused on the opportunity for challenger banks and fintechs to gain market share, there is no doubt that larger banks will have some obvious natural advantages:

 They have interacted with and understood consumers for far longer than fintechs and have many more financial, technological and human resources than all but the most well-ordered competitors. And importantly, they also have access to licenses to engage in activities and behaviours that many smaller banks and fintechs do not.

According to RFI Group data, consumer awareness of open banking is very low, with only 5 per cent of consumers having heard of the initiative. Upon explanation, however, 15 per cent found open banking to be highly appealing. Among consumers that are most likely to use open banking, 81 per cent are comfortable with their main bank offering the service.

The challenge for the major banks, however, is how to use their considerable resources and market share to produce data-driven insights and create customer-centric products and services.

According to a recent report from KPMG, the answer for many Australian banks is to engage and collaborate with fintechs. Data shows 67 per cent of Australian respondents in the banking industry have a clear strategy in place to deal with fintechs, compared to 47 per cent globally.

Fintech services that are most of interest to Australian banks are analytics and big data, followed by API, robotics/ robo-advice and artificial intelligence.
Positively, this shows that Australian banks are embracing disruption and technology trends. While there has been some hesitation from banks to open their doors to external parties in the past, many are increasingly recognising the potential of fintechs to assist in delivering customer-focused, innovative and frictionless banking.

Some examples include Macquarie with its recently-launched open banking platform; Commonwealth Bank and its range of fintech partnerships and Westpac’s investment in venture capital group Reinventure.

Lessons from the Japanese market
As a business with roots in both Australia and Japan, we at Moneytree have had the opportunity to observe some similarities and differences between both markets.

The open banking regime is already well underway in Japan, where 12 banks have opened their APIs and 110 will do so by 2020. This has made all players move into a higher gear in terms of accelerating consumer-focused activities and we are also seeing Japanese banks reaching out to more fintech players to help them to innovate.

However, due to the sheer size of Japan’s cash-based economy, banks’ API strategies are heavily focused on cashless transactions and digital payments – demand for which is growing as the country prepares for the 2020 Tokyo Olympics.

In Australia, where consumers have already come to expect innovations such as banking apps and tap-to-pay services, we see even greater potential for rapid transformation in the customer experience as open banking comes into play.

Rebuilding trust
Above all, the advent of open banking will provide a way for Australia’s large financial institutions to reconnect with customers and begin to restore the trust that has been damaged through enquiries such as the Royal Commission.

Giving consumers greater transparency and control over how and where their data is used will take the legwork out of shopping around, and lead to new, more personalised and convenient services that put the customer at the core.

Open banking is also expected to improve responsible lending, a key theme for the Royal Commission, by giving consumers a clearer picture of their financial health and allowing banks to make more informed decisions. Much more work needs to be done here, but transparent, easily facilitated access to data is a strong starting point.

This is a time of great change in the Australian banking sector but also one of great opportunities, and we believe we are on the cusp of a major leap forward in banks’ relationships with customers.