Open Banking: A New Era for FinTech in Australia
75% of Australia’s tech-savvy consumers are already placing their trust in financial products from big tech companies. This, coupled with the rising demand for private lending, looks set to boost the demand for fintech solutions in the commercial lending space.
Open Banking: A New Era for FinTech in Australia
75% of Australia’s tech-savvy consumers are already placing their trust in financial products from big tech companies. This, coupled with the rising demand for private lending, looks set to boost the demand for fintech solutions in the commercial lending space. Customer-centred loan brokers like Acumen Finance recognise that and have moved quickly to harness the power of fintech for a more satisfactory customer experience. Topped off by open banking’s 2020 rollout, further discussed below, this year could herald a revolution for fintech in Australia.
Basis Behind Open Banking
In recent years, the Australian Competition and Consumer Commission (ACCC) has realised the importance of the constant and enormous trail of data citizens generate as they go about their daily lives. This caused them to introduce the Consumer Data Right (CDR) rules on 26 November 2017. Through this legislation, it has become simpler for individuals to not only get access to but even pass on their data to other organisations. In essence, consumers can now exercise control over their information. Open banking, the arm of the CDR regulations that affect the banking space, allows financial institutions’ customers to access and share their monetary information, whenever and with whomever they choose.
At first glance, consumers are the obvious beneficiaries of open banking. They get to access and share four categories of financial data: account, customer, product and transaction data. This way, they can compare companies’ diverse product and service offerings to make better-informed financial decisions. All this, in just a few clicks.
For individuals looking to take out loans, this is also great news. Borrowing is known to be notoriously tricky forfreelancers or small businesses. However, with open access to personal data from various sources, it is now easier to show credibility and solvency in a loan application. Since competitors can easily counter their terms, this may influence lenders to make better offers.
On the financier’s end, increased competition may cause traditional financial institutions to be initially fearful. However, ACCC hopes to create long-term benefits for finance providers through the release of this data goldmine. Greater amounts of information paint a more well-rounded picture of individuals’ financial positions and spending patterns. This empowers the banking sector to come up with product offerings that better serve the community and loan processes that facilitate more accurate lending. The result: better client experiences, revenue growth, and a more competitive business.
Fintech, An Unexpected Victor
Surprisingly, though, another group that stands to reap huge benefits from open banking is the fintech firms.
As consumers become more aware of financing alternatives, they will increasingly seek out better product offerings, such as those that are tailored for them and provide a frictionless customer experience. However, most financial services providers, especially the big banks, find it hard to support such radical innovation. In these established organisations, products and data often operate in silos. The infrastructure used is often passed down over generations, and there is an overall tendency to be more conservative and less willing to take risks.
Any resulting innovations that big banks have employed have been incremental and inclined towards reducing costs rather than enhancing user experience. Characteristics like less intuitive designs, single-channel rather than omni-channel products, and a poor integration fit with external organisations’ systems have even pushed down customer satisfaction levels. Today’s in-house innovation may still be an added convenience, but perhaps not the best use of resources, according to Ron Shevlin, Director of Research at Cornerstone Advisors and a weekly contributor toForbes.
For the solution – look to fintech companies. Well-versed in financial technology and sporting an agile mentality, these firms are in the best position to provide the pivotal innovation customers are clamouring for in today's world. Users who have lost trust in the traditional banking sector are already accepting the more established fintech players, and it will be a matter of time before this domino effect spills over to the rest of the industry.
Australia, alongside other pioneers like the United Kingdom, is currently a leader of the open banking movement. So long as they embrace the trend and develop APIs that facilitate business collaboration and open sharing of data, fintech organisations look set to prosper.
Upcoming Changes and Their Impact on Fintech
2019 saw the beginning of phase 1 of the CDR, and this year we can expect to see the rollouts of both phase 2 and 3.
By the end of the second phase, which started last month, all banks will have to make information related to residential, investment or mortgage offset accounts accessible. Once these details are available, it will be much easier and quicker for consumers to move from one bank to another to secure the most advantageous housing loans. Come phase 3 on 1 July; banks will also need to grant access to data surrounding personal loans, credit lines, overdrafts, business loans and foreign currency accounts.
As data portability increases, there will be substantial amounts of information waiting for analysis for better decision-making. Here is where fintech, with its rapid and systematic processes, can save the day. Tech players can seize this opportunity to tie up with traditional banking institutions who will soon require technological expertise, whilst leveraging on their bigger resource pool at the same time. Anirban Bose, CEO of Capgemini’s Financial Services Strategic Business Unit and Group Executive Board member, even predicted that the banks who collaborate with fintechs would flourish the most. As such, it should be no surprise if fintech firms hear banks knocking on their doors in no time.
Indeed, fintech is the engine of the future. Acumen Finance, as a progress-driven and customer-centric organisation, is one of the first loan brokers to employ a fintech-facilitated platform in our client servicing. Whether for traditional loans, Peer to Peer lending or otherwise, rest assured that the limitless power of fintech will back your corporate finance goals. Reach out today and start funding your business now.