It’s not too late to fix Australia’s Open Banking bungle, but industry must lead

Open Banking's global promise of data democratisation is in danger of faltering in Australia if policy-makers fail to address the needs of businesses.  However if Open Banking bombs, the implications will be a lot further stretching. 

The rise of Open Banking has opened up new opportunities for consumers and businesses alike. In the UK, it has spawned a vibrant ecosystem of 3.9 million regular consumer users, served by more than 300 fintechs. Around 600,000 small businesses have also embraced Open Banking as a way to enhance access to financial services and drive competition. In that market, the rise of Open Banking is now set to unhinge the floodgate for Open Finance, which brings the benefits of leveraging financial data to unlock benefits in broader industries, services and for wider market segments. 

This democratisation of data promises to help businesses forge stronger bonds with their customers, by supporting a range of new innovations designed to underpin the always-on digital economy. But not if Open Banking falls flat. 

The launch of Open Banking was not only set to benefit Australian consumers, it was also set to enhance access to financial services for Australian businesses to drive competition.

As the Australian lending market tightens its belt amid interest rate hikes, better business underwriting,  better visibility of finances to help businesses understand their position, and streamlined credit approval processes through Open Banking promise to be a welcome innovation.

Unfortunately, Open Banking has launched in Australia with a whimper rather than bang, and it seems we’ll only face heavier headwinds. With the advent of the latest Optus and Medibank breaches, data security is now front of mind for all, and Australians are more sceptical than ever about putting their data in the hands of corporations. Despite the slew of benefits we can unlock with Open Banking, this new reluctance will likely cast a shadow over the regime, creating a lose-lose situation for everybody.

Especially for small businesses, which have been forgotten by the regulators and deprioritised by banks for far too long. While the Consumer Data Right has the potential to transform financial services for businesses, it is far from useful in its current state and requires a lot more work to unlock its true value, particularly in a B2B context. 

As it stands, Open Banking is not yet fit for purpose, leaving industry-led innovation as the only way the nation will unlock its true value.

For starters, the ACCC has been forced to provide exemptions to a large number of tier two lenders after they missed the Open Banking deadline for non-major banks to provide data on deposits, transaction and savings accounts, as well as debit and credit cards.

Providing these small banks with even more time to comply with Open Banking regulations has delayed the widespread availability of data – when universal access was supposed to be one of the cornerstones of Open Banking's success. The banks' failure to hit these milestones undermines broader confidence in the system.

While banks have dragged their heels, some members of the fintech community have forged ahead and invested more than a million dollars into Open Banking Accredited Data Recipient connectivity – only to find that it is crippled for business data sharing. 

One of the key promises of Open Banking was to help small and medium businesses obtain better prices and streamline credit approval processes. Slashing the admin burden associated with applying for financial services like business loans, Open Banking should allow them to provide all the necessary information in just a few clicks. 

Yet no business account data is flowing, because the banks have made Open Banking a double opt-in process for business accounts. Currently, before a data connection can be authorised via Open Banking, a business holder must go through an additional step to become a nominated ‘data sharing delegate’. Each bank manages this process in a different way, but in some cases, it involves a busy business owner having to go in person to a bank branch to sign a paper form. The main premise of open banking - a more seamless digital experience- is therefore totally nullified.  

For now, it often falls on industry-led innovations to overcome these shortcomings, such as Open Banking platform Basiq's Flexible platform that gives option to share data from over 200 Australian banks, via Open Banking or web connectors.

Regulators are also yet to resolve how intermediaries can provide data or insights to unaccredited parties. Then there is the issue of whether trusted advisers, such as accountants, can access data on behalf of their clients and customers.

All of these issues combined will almost certainly ensure that Open Banking in Australia fails to deliver on its promises. But it’s not too late to hear out the gripes of industry players and make some simple adjustments. 

If these issues aren't addressed, traditional screen-scraping will remain far more practical for many Australian businesses than the much-lauded Consumer Data Right and for those who have invested in the infrastructure, a hole in their back pocket. 

For businesses, banking data is just the tip of the iceberg of what is needed to increase productivity, unlock fairer access to finance and drive economic growth.

The most important financial data for a business sits in their accounting data, eCommerce platforms, POS systems and other financial tools that manage day-to-day operations. 

Until Open Banking is fit for purpose we can't progress to the next stage, Open Finance, where the real benefits will be.