open banking

The findings have come from a new report by fintech Frollo and lending technology provider NextGen.Net, which has looked at what the financial services sector sees for open banking since the consumer data right (CDR) launched in July, as well as its challenges and opportunities.

The research has been based on a survey of 161 finance and broking professionals, with 71 per cent (excluding brokers) that intend to use data from the CDR regime. Around 58 per cent stated they intend to use CDR data within the next 12 months.

All banks and lenders questioned in the survey intend to use data under the regime, but almost half (42.9 per cent) signalled they will be outsourcing development of their data recipient technology to external parties.

Around a third (31.4 per cent) said they will be building their technology themselves, while 25.7 per cent said they didn’t know yet.

All fintechs similarly said they intend to use CDR data, with 56.7 per cent intending to do so within the next 12 months. Around a third (36.6 per cent) will be building their own data recipient technology.

Looking at technology providers, 81.3 per cent said they intend to use the data and 42.8 per cent are looking to do so within the next year.

‘There is too much ambiguity’

Streamlining the process for lending, through income and expense verification was identified as the most popular immediate use case for open banking, with 56 per cent of respondents rating it as valuable, followed by onboarding automation (52 per cent) and account verification (41 per cent).

But one of the largest challenges for financial services providers was ruled to be uncertainty around the rules, particularly around future scope for write access and tiered accreditation, which are currently in consultation for the phase three rollout.

Frollo chief executive and founder Gareth Gumbley said while the rollout was on track, there was a lack of clarity around what is involved under the CDR in terms of costs and return on investment.

“We know that change at this scale doesn’t happen at the flick of a switch, but as it stands there is too much ambiguity. The rules aren’t clear and for many it’s perceived as a mountain too big to climb,” Mr Gumbley said.

“There’s a difference between consultation and collaboration. Now is the time for the regulator to invest in a simpler and more flexible framework to speed up adoption, or empower banks and fintechs to innovate and get on with it for the benefit of everyone else who will follow.”

Further, the survey found many believe the scheme will place competitive pressure on incumbents, but the majority think it will take three to five years before the majority of Australians will have used open banking.

The report revealed commitment to invest is varied. The majority (64 per cent) of banks and (54.6 per cent) of technology providers indicated they would be spending more than $500,000, while 54.2 per cent of fintechs are expecting to spend between $100,000 and $500,000 on open banking in the next year.

Enhancing customer experience was cited as the primary drive behind investments in open banking, by 64 per cent of respondents, followed by product innovation (56 per cent), meeting shifting customer demands (40 per cent) and optimising processes (40 per cent).

NextGen.Net chief customer officer Tony Carn commented open banking would be a pivotal event for the Australian mortgage industry.

“The opportunity to streamline credit decisions by using CDR data to reduce unnecessary friction in the application process and speed up the decision process is a game changer for the sector,” Mr Carn said.

Use cases, such as income, expense and liability verification, will also help to reduce the costs and risks involved on the lender side, making it a logical and popular use case amongst banks, lenders, fintechs and brokers and aggregators alike.”

He added the scheme could also present a new way for sourcing and nurturing customers through their life cycle.

“It’s not just the one moment in time (such as getting a home loan), but the opportunities to get customers fit for finance before and after,” Mr Carn said.