Australian banks are significantly lagging their global peers in preparing for an open banking framework and risk being irrelevant as new entrants such as fintechs continue to provide innovative customer services.
This is the assessment made by Phil Gomm, banking and capital markets industry practice lead at Capgemini. His comments followed the launch of the firm’s annual World Retail Banking Report 2017, which assessed 16,000 banks and institutions across 32 countries.
According to the research, Australia is still grappling with issues in open banking and is behind the eight ball when compared to international competitors that are doing it right, such as OCBC Bank and Citigroup.
“Our scorecard on the local market is not very strong. Global banks have made significant process in moving to an open banking framework,” Gomm told AB+F.
“Publicly the Australian banks have been defensive in their attitude towards the issue of open banking. They are not in the frame of mind to attack the opportunity like we are seeing with global banks,” he added.
A defensive approach
Gomm did, however, acknowledge that “some degree of experimentation is going on behind the scenes” before giving an assessment of each of the four big banks.
National Australia Bank is looking to embrace open banking principles, demonstrated through its initiatives with NAB Labs and its venture capital fund, NAB Ventures. Westpac also has a similar initiative through its collaboration the Reinventure Group. Gomm describes the bank as being a “fast follower” that is “making good progress”.
Australia and New Zealand Banking Group, while wanting to adopt the principles of open banking, remains defensive by citing data security risk issues as key concerns in such a framework. Although Commonwealth Bank of Australia is experimenting, Gomm added that it is not doing this in the market and like its Australian peers has maintained a defensive approach.
For Gomm, the big opportunity is in opening up and monetising APIs, through partnerships with fintechs as well as the “big techs” including Google and Apple.
“These are real candidates for the consumption of APIs and they are willing to pay banks for services that the banks can deliver through these APIs.”
Gomm cited Uber as the “poster child” in illustrating how APIs can be monetised by offering a seamless payment experience. Customers can use the Uber app to book a car but the corresponding payment is made through the API gateway Braintree, owned by PayPal.
“Banks could own similar APIs, providing them with not only additional revenue streams but the opportunity to remain relevant in market," he said.
For example, Citigroup in Singapore has deployed a payments API so that customers could apply for a Citi cash-back card through honestbee, an online concierge and delivery service. In Australia, the global bank has been working with Virgin Money to provide a dedicated mobile money app using its API for credit card functionality.
The chief executives of the big banks have highlighted concerns around customer data security, a message that has been consistently conveyed at the recent parliamentary bank inquiries.
However, Gomm believes that the issue will be increasingly irrelevant as the sector moves to a more open framework.
“I accept that banks have to consider their risk and reputation on the back of trust that has been garnered over 100 years. It is incumbent upon banks to take a paternalist approach to protecting their customer data but the message is clear. The data belongs to the customer," he said.
“It is only the customer who has the mandate to decide whether organisations can access their information.”
He acknowledged that the government’s decision to move to an open banking system was “strategically in the right direction” and the overlay services provisioned by the New Payments Platform will provide even more opportunity for banks to develop APIs and operate in a more open framework.
“The Australia banks can defend and preserve their position through competitive pricing or by procrastinating and adopting a wait-and-see approach," Gomm said. “Or they can attack and embrace the open banking principles by developing and experimenting with APIs. Open banking is the hottest topic for all the global banks. They recognise the transformation agenda that lies ahead.
“But for Australian banks, they are simply not moving fast enough.”
For full, wide-ranging coverage on open banking, see the July issue of AB+F Magazine.