The old adage that people are more likely to change their partner than their bank may not be true for much longer. In the coming years open banking is expected to dramatically change the financial services landscape in Australia, giving more power to consumers and improving competition.
From 1 July 2019, the big four banks were required to give customers access to their banking transaction data and share that data with third parties upon request. By February 2020 the major banks will also need to make mortgage data available, while the non-major banks will have an extra 12 months to comply. Here are some of the expected benefits:
1. It will be easier to change banks
Most people don’t change banks for a better deal because it is painful and time-consuming. In an open banking environment, it will be as simple as instructing your current bank to share your account details with your new bank, significantly reducing the hassle-factor. It is likely you’ll be able to do this from an application (app) on your phone with a number of local Fintech products in development. This is already happening in the UK, where open banking was implemented 12 months ago. Reducing the barriers to change means the big banks will no longer be able to take their customers for granted; they’ll be forced to compete with smaller or online banks who may offer better service or interest rates.
2. You could get a better deal on your mortgage or credit card
Financial services products are expected to become more personalised as a result of open banking. Credit-card offers for example, will be based on an individual’s purchase history, lifestyle and repayment habits. If you’re looking for a home loan, you’ll be able to share your transaction history with potential lenders to show that you live within your budget and make loan repayments on time. As a result, you could be offered a mortgage with better interest rates or terms instead of an off-the-shelf loan product. Real time visibility of your credit rating and alerts to pay outstanding bills or overdrafts will also be valuable.
3. Budgeting and financial management will be streamlined
Right now, some of the best mobile apps for managing your money like Xero (business cashflow), Pocketbook (budgeting), Raiz (micro-saving) or TrackMySpend (personal payment management) are not as useful as they could be, due a lack of real-time bank and credit card data. Open banking will enable the flow of information between bank records and apps to facilitate smarter money management. In the near future you could set up automation like, ‘When I’ve paid my bills and have a $2,000 balance in my account, automatically transfer $500 to my super fund, but stop when I reach my concessional contribution cap of $25,000.’ The possibilities are intriguing as technology evolves. We expect it will also encourage people to seek financial advice sooner by making it easier to share financial information during the discovery process.
The bottom line
The introduction of open banking is a promising innovation that will allow people to take control of their data with the prospect of getting a better deal from financial services providers. While it’s natural for people to have some concerns about data security and privacy, the risks are being well managed by the banks and regulators. In the end the benefits of open banking are likely to outweigh the concerns for consumers.
Find out how open banking will impact your financial situation
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977.