After a full year of delays, open banking has finally gone live in Australia, marking another milestone as Australian banking matures in the digital age.
Here are 5 topics in July-August that caught my eye, describing how banks are keeping up with new customer needs and demands.
1. Easing slowly into open banking
July 1 saw the launch of open banking in Australia, with two accredited data recipients. Regional Australia Bank used the new capability to streamline income and expense verification for loan applications, while Frollo upgraded their existing screen scraping-based account aggregation to use the open banking rails for accounts at the big four banks.
There were a few teething problems including issues at one of the major banks resulting in revocation of some data sharing consents for Frollo, requiring users to provide consent again. A bigger issue is the cost and complexity for aspiring recipients to gain accreditation. Noting these challenges, Innovation Australia highlighted industry calls for amendments to support intermediaries and tiered accreditation.
July also saw Up launch their own API, initially only enabling customers with some coding skills to access their personal data. With a different objective than the CDR, opening access to the API should help Up crowdsource some interesting use cases to build out their growing base. More than 250,000 consumers now have an account with Up, accounting for around 1% of Bendigo’s current deposits.
Meanwhile, the New Zealand Ministry of Business Innovation and Employment has launched a consultation on whether to develop a Consumer Data Right. Four main options are being discussed, with an initial preference for a sectoral approach similar to the Australian CDR, comprising a high-level framework complemented by industry sector-based designation. Submissions close 5 October.
2. APRA resumes Activities paused due to Covid
This month APRA announced licence issuing will resume from September. New licences will first be limited to proven, well-capitalised branches or subsidiaries of foreign entities. The restrictions are due to be relaxed from March 2021.
The announcement also highlights a further review into the RADI framework, although there is a lack of clarity on timing for current and pending applicants. This uncertainty is expected to put off a number of aspiring neobanks either preparing or actively raising funds from investors.
3. Banking apps still have room to improve
Taking inspiration from the research completed by UK agency Built For Mars, an Australian consultancy has analysed the digital account opening experience for Australian consumers. With most banks placing a priority on acquiring the younger, digital savvy consumer, this is likely to be an area of growing focus and investment.
Last month, Forrester also released their latest review of Australian mobile banking apps (requires subscription). Although results are limited to only the four majors and one neobank, the report highlights a number of areas where Australian banks can do more, including helping consumers with money management and engagement/alerts.
Similarly, UK bank aggregation app Yolt announced a major update together with research into customer behaviour in an effort to offer more useful services on its platform. As reported by Financial IT, despite a majority of respondents (61%) claiming to have had intentions to save money during the COVID-19 crisis, only 35% managed to actually improve their savings habits.
4. Bigtech distribution of financial products is accelerating
In the US, Google’s plans for a greater role in distribution of financial products are becoming clearer. Six more institutions recently agreed to offer digital bank accounts through Google Pay, with Google providing the front-end, digital experiences and financial insights. Participating institutions will co-brand the accounts, offering some ability to maintain their own ties with customers.
For small and medium sized institutions, challenged by the continually rising level of customer digital expectations, a partnership with Google can clearly help. There’s also the potential to benefit from Google’s vast reach to acquire more customers. On the other hand, as highlighted by Banking Dive, they need to manage the risk of neglecting critical investment in their own digital capabilities due to the partnership and ending up commoditised by the tech giant.
Another example of the developing distribution partnerships between banks and tech giants is ING’s deal with Amazon in Germany announced last month. Amazon will act as the broker, introducing merchants to ING for loans of between €10,000 and €750,000 with a repayment period of up to three years.
Trading platforms like Amazon accumulate valuable data on the health of merchants and can easily benchmark applicants. It is not clear if the arrangement includes the sharing of Amazon’s data to enhance ING’s credit assessment and pricing.
5. Finding a path to a sustainable challenger bank model
Much has been written in recent months about the business model challenges faced by leading neobanks. These have only been intensified by the pandemic. Monzo’s business model in particular has attracted some detailed analyses by Sifted and others. Meanwhile, Revolut continues to invest in growth, this month completing their full launch in Australia and confirming plans to apply for a banking licence.
In an interesting discussion with Chris Titley, Gerd Schenkel highlighted some key challenges Australian neobanks are facing, especially in terms of regulatory capital. Some have found ways around this, including Up through its partnership with Bendigo, while soon-to-be listed Douugh is leveraging on Regional Australia Bank’s platform. Gerd suggests mid-sized banks may have the most attractive opportunity, leveraging their existing scale while transforming to a true digital first model.
About the Author
Dr. Malcolm Macnaughtan is Regional Director for Australia and New Zealand at award-winning fintech software provider, Backbase.
He oversees Backbase’s sales and go-to-market success for his territory in Asia Pacific. With an extensive background in technology development and commercialisation, Malcolm helps financial institutions transform their digital channels to get in shape for an increasingly competitive digital and open banking future. He has worked with banks, accounting and advisory firms to apply digital technology to serve their customers more effectively and profitably.
Prior to this, Malcolm’s experience spans diverse roles including start-up co-founder, R&D, product management, and sales leadership.
An engineer by training, Malcolm has a PhD in wireless signal processing and is first named inventor on a number of international patents.