The Australian Federal Treasury is considering a proposal that could exempt small banks from the open banking data sharing framework. This change could impact the ability of consumers to compare financial products, as approximately 55 smaller lenders might no longer participate in the Consumer Data Right (CDR) regime. Mortgage brokers have raised concerns that this move would hinder competition and limit the options available to consumers seeking better mortgage rates and financial services.
A consultation document, which has not yet been published but was reviewed by The Australian Financial Review, outlines a plan to allow banks with less than $5 billion in loans to opt out of the CDR. Currently, open banking is a mandatory system designed to enable consumers to share their banking data securely with other lenders and financial technology companies. The proposed exemption would mark the first instance of any banks being permitted to withdraw from this regulated framework.
According to the document, banks that fall below the threshold would no longer be required to respond to data requests under the CDR. This change would relieve 55 banks of their data-sharing obligations, leaving 22 larger banks, including major and regional institutions, within the regulated environment governed by the Australian Competition and Consumer Commission (ACCC).
Stuart Low, chief executive of Biza, a company facilitating data sharing for small banks, expressed concerns about the potential implications. He stated, “This is not a consumer ecosystem if two-thirds of banks are not in it.” Biza currently serves approximately one quarter of the banks that could potentially exit the CDR. If these banks choose to withdraw, Low indicated that Biza might pivot away from banking data sharing to focus on other sectors such as energy and non-bank lending.
The open banking initiative, launched in July 2020 under the Morrison government, was intended to enhance competition in the financial services sector. However, its implementation has faced challenges, including problems with complexity and data reliability. The Albanese government is currently working on a “reset” aimed at improving usage and reducing compliance costs associated with the system.
Consumer engagement with the CDR has been growing. Reports indicate that over 800,000 consumers accessed the CDR between January and July 2023, representing a significant increase from 530,000 in the preceding six months. The ACCC also reported 582 million data requests during the same six-month period, indicating a growing reliance on this data-sharing framework.
Mortgage brokers are particularly concerned about the potential for a two-tiered system if smaller banks are allowed to opt out. Anja Pannek, chief executive of the Mortgage and Finance Association of Australia (MFAA), emphasized the importance of expanding open banking. She noted that open banking has recently gained traction in home lending, providing consumers with a secure and immediate way to share financial data.
Pannek stated, “Carving out dozens of smaller banks risks a two-speed regime, with customers of larger lenders able to safely share data through open banking and those with smaller lenders reverting to screen-scraping.”
The discussions around exemptions for smaller lenders follow ongoing concerns raised by the Customer Owned Banking Association (COBA) regarding the high costs of compliance and low consumer uptake of the CDR. COBA has reported that customer-owned banks have collectively invested over $100 million in the CDR, with limited benefits to date. The overall banking industry is estimated to have spent around $1.5 billion since the initiative began, according to a report by Accenture.
Simon Birmingham, chief executive of the Australian Banking Association, acknowledged the high compliance costs facing banks under the CDR framework while asserting that the system is likely to persist. He noted that the CDR represents an opportunity for significant contributions to the government’s regulatory simplification agenda.
A representative for Assistant Treasurer Daniel Mulino confirmed that the Albanese government is undertaking a reset of the CDR to identify areas for reducing compliance costs and increasing uptake. Early consultations are taking place to gather feedback that will inform the government’s next steps in this critical area of financial regulation.
As these discussions progress, the future of open banking in Australia remains uncertain, with significant implications for consumers and financial services. The outcome of the Treasury’s consultation could reshape the landscape of data sharing and competition in the banking sector.
