After a tumultuous 2020, the New Year brings more change and, for commercial banks that act boldly, new opportunities in Open Banking. As of February 1st, Australia enters the next phase of its Open Banking transformation when banks and other financial institutions are required to be ready to share business finance data across the industry at their customers’ request. Commercial banks will be able to use this data to offer new products and services and customers will be able to negotiate better rates and packages with their banks—and with your competition.

Change is already underway. In July 2020, Australia introduced the first phase of Open Banking with its Consumer Data Rights (CDR) Act, which applies to multiple industries including banking, energy and telecommunications. The rollout across banking products is happening in three stages:

  • July 2019 − Phase 1: savings, cheques, debit card accounts and term deposits;
  • February 2020 − Phase 2: home loans and offset products;
  • February 2021 − Phase 3: business lending, investment loans, lines of credit, overdrafts and asset financing.

When it comes to customer data, large financial institutions have traditionally been the gatekeepers. They’ve been the sole proprietors—and sole beneficiaries—of data relating to customer transactions, products and behaviour. Open Banking changes the game by putting control back into customers’ hands, giving them the ability to make informed choices and seek out the best products and services.

Open Banking allows customers (be they individuals, small businesses or large corporations) to share their data across fintechs, credit scoring agencies and other competing banks. The model is designed to increase transparency within the banking industry, support easier switching and improve customers’ choice when selecting financial products.

Commercial banks stand to benefit as well. Open Banking will bring a myriad of new opportunities for commercial banks—from enabling them to offer tailored services that address the unique needs of small and medium enterprises (SMEs), to finding efficiencies by aggregating in one place the accounts, payments and other financial data of larger corporations.

Are commercial banks ready for the new era of Open Banking?

In many parts of the world, including the UK and Australia, the introduction of Open Banking has been government-led, with legislation that compels banks to adopt a consent-based approach to sharing customer data with those who are approved to receive it.

This consent provides banks with a gateway to entirely new sets of data. With access to verifiable transaction histories, for example, a bank gains greater insight into a small business’s up-to-date financial position. This enables the bank to offer competitive pricing and lending products that accurately assess and reflect risk. Commercial banks that look beyond a compliance-only mindset and take a proactive approach to data management and analytics will be the ones to benefit most from new opportunities like this.

Traditional commercial banks who are taking a compliance-only approach to open banking may be missing a huge opportunity to innovate on their product set, acquire and retain customers.

Open Banking is a global movement. In Europe, of 308 registered fintechs, 67% are looking to create value for the SME segment through innovative, Open-Banking-based products and services. In Asia Pacific the proportion is even higher at 90%, due to the less demanding regulations and higher margins that make it attractive to new entrants. Accenture research suggests that between 2018 and 2020 over €27 billion in SME banking revenue shifted to fintechs and digital leaders that are using Open Banking to deliver improved products and innovative services, and that address a broader set of SME needs.

Open Banking: Five actions for Australian commercial banks to take now

The immediate priority for commercial banks must be compliance. Business financial product regulations go into effect on February 1st, 2021, and banks are required to make that data immediately accessible. Beyond February, they should be looking to innovate and grow. They should be incubating ideas and defining their strategy to evolve their products, services and even their business models based on newly available data. Here are five actions they should be considering:

  1. Act now and secure a first-mover advantage. Forward-thinking commercial banks have an opportunity to look beyond compliance and legitimately monetise their data investment, targeting an estimated 10% increase in revenue. Those which are first to securely ingest data, turn it into insights and construct innovative business financial products will have a significant competitive advantage. Iwoca was the first business lender in the UK to access Open Banking back in 2018. Its integration with Lloyds Bank allowed business owners to provide up to five years of transaction history in minutes and dramatically improve the time the bank takes to provide a credit decision. Within two years Iwoca overtook two of the country’s largest High Street banks in market share for business overdrafts.
  2. Develop use cases using an agile test-and-learn approach. Commercial banks can get to work right now on measuring where Open Banking might have the greatest impact on the business. Take an effort-vs-cost approach to use cases with high-scoring opportunities and inexpensively trial them with short test-and-learn sprints. One large bank in the UK rapidly adapted its credit risk models to open up lending to start-up businesses that had previously been excluded by its credit policy. Open Banking allowed this bank to create an entirely new revenue stream and proactively monitor serviceability.
  3. Build customer trust by defining and adapting your consent model. The cornerstone of Open Banking is customer consent. Commercial banks must understand how to obtain ongoing and evolving consent (when a customer’s preferences change, for example), and then apply this to the underlying data when a request to access it comes in. Larger banks may already have an enterprise consent model in place.
  4. Understand which data needs to be shared, and how. The standards that define the protocols and the precise fields that need to be shared can be located on the Consumer Data Standards Australia website. Larger organisations may have a technology services team that will do most of the heavy lifting, but product owners and business teams should know which components of their customer data are now being provided to their competitors. An enterprise-wide effort, from strategy through to operations, will be required to consider all aspects of an Open Banking implementation.
  5. Become an authorised data recipient. Open Banking can only be used as a strategic enabler for businesses that are registered to actually receive data held by other organisations. Banks must be able to demonstrate that they have processes and protocols in place to keep the data private and secure. Information on how to become an accredited data recipient can be found on the Consumer Data Right website. Banks that position themselves to access data from their competitors will unlock enormous potential for innovation and opportunity.

By acting now, commercial banks can establish a set of compliant data sharing models and create a springboard that will enable revenue growth in the future. Those that act decisively to experiment and innovate on their products and services using open data stand to be the true banking leaders of our time.

Stay tuned for the next instalments of the Accenture Commercial Banking Open Banking Blog Series, where we will spotlight the opportunities Open Banking presents for commercial banks, how they can be leveraged and how to build a secure and scalable open data platform.

In the meantime, get in touch with the authors or Australia and New Zealand leaders Alex Trott (Banking Lead) and Eleanor Scott (Open Banking Lead) to discuss your Open Banking innovation strategy. You can read more of Accenture’s latest thinking about Open Banking here.

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