By Malcolm Macnaughtan
Although the new year has just started, digital innovators are hard at work – and so are we. Having launched Backbase-as-a-service here in Australia and New Zealand last month, we’re gearing up to create new waves in 2020. Exciting times are coming, and we want you to be a part of them.
With digital reinvention being the latest buzzword, there’s a lot of news floating around. To help you find the signal amongst the noise, I’ll be sharing my thoughts and favorite articles on a monthly basis here. Hopefully this will help you on your own digital banking journey.
Let’s begin shall we?
CBA’s deepening partnership with payments innovator Klarna is interesting from many perspectives. Payments industry observers will be watching to see whether it further accelerates the shift from credit to Buy Now Pay Later (BNPL). Another question is whether it will gain sufficient volume to improve economics and cost of fraud for merchants. Perhaps most significantly for the industry, does it signal an increasing advantage to scale in the connected digital future of finance ? Will the biggest incumbents buy their way to privileged or exclusive fintech partnerships and maintain their advantage?
From a tech perspective the integration of Klarna into the bank’s channels is noteworthy. In addition to promoting the Klarna service, the CommBank app integrates with Klarna making it easier for users to manage their deferred payments. It’s a good example of the strategic importance of a digital channel architecture that enables seamless integration of complementary products and services.
Governments around the world have been introducing legislation compelling financial institutions to open up and share their customers’ data. The Australian government is going even further with the Consumer Data Right that will extend to other types of sectors including utilities. The principle at the heart of it is that consumers own their data and should be able to share it securely with accredited service providers.
In a new twist, banks in Australia have highlighted the utility of data held by the taxation department. Will the government agree that the principle of consumer ownership extends to the tax data it holds? If they do, how quickly will banks be able to react, ingest the data and use it to drive customer value?
A vigorous debate is underway as the Australian senate inquiry considers the practice of “screen scraping”, the approach used by many providers to access consumers’ financial information in the absence of pervasive, secure APIs.
While many of the submissions predictably reflect long held positions, the debate has pitted some fintech players against each other. Fintech Australia, representing a number of the newer players in the industry argues screen scraping is needed for the time being. Digital banking innovator Up on the other hand argued strongly in its submission that the practice carries substantial risks and should be stamped out.
In the long-run the CDR obligations should ensure the ubiquitous, secure access needed for a dynamic, competitive market. In the UK, following a similarly vigorous debate regulators adopted a phased approach with screen scraping to be replaced by early 2020. The Australian senate inquiry is due to return its findings by October this year.
While the provisions of the existing Consumer Data Right legislation are still phasing in, a further inquiry by the Australian Government treasury will consider whether the right should be expanded beyond the current read access. This means potentially allowing third parties to initiate or “write” payments on behalf of customers. If confirmed, this would bring the Australian legislation more in line with the PSD2 regime in Europe and the voluntary code emerging in New Zealand.
For banks, expanded open data capabilities would of course mean an expanded range of competitors and competing propositions. Investing in flexible digital foundations and the accompanying agility to respond to new competitive threats becomes more important than ever.
Compared to existing screen scraping techniques, a major benefit of the new legislated open banking scheme is the secure access as well as the accreditation of participants. For aspiring innovators however, that accreditation comes at a cost. FinTechs have to meet a range of data security and privacy requirements. FinTech Australia has estimated that the compliance associated with the scheme would cost FinTechs on average $50,000 to $100,000 annually. Former special adviser to the Prime Minister on Cyber Security Alastair MacGibbon is urging the government to provide financial support to startups and small businesses to help them meet these costs.