Australian bank inquiry recommends open data measures
(25 November 2016 - Australia) The House of Representatives Standing Committee on Economics has recommended that major banks be forced to provide open access to customer and small business data by July 2018 to be accessed by competitors including other banks, startups, and other financial institutions.
The report requires banks "be required to develop a binding framework to facilitate this sharing of data making use of application programming interfaces (APIs)".
Should the recommendations be adopted, the major banks will be forced to give up their customers' transaction histories to other banks and fintechs, resulting in increased competitions according to the parliamentary committee report.
The Productivity Commission said in a report earlier this month that customers own their data but it said the costs of implementing an API regime – which is being forced on banks across in Europe – would be too expensive.
Some customer transaction data is available to other firms via CSV files, or fintechs use scraping technology, however APIs provide a more seamless and secure integration with third party applications.
The committee said it was clear "that APIs present the largest number of benefits in terms of data security, data credibility, and accessibility.
"APIs will, however, require meaningful upfront investment."
Data from Britain's Open Data Institute quoted in the committee report estimate each British bank has spent around £1 million (A$1.7 million) to create open APIs.
The report said data from the incumbents would be made available to "licensed users" and should be machine readable so it can be processed automatically. It also said it should be provided at no or negligible cost on an ongoing basis.
It called on the Australian Securities and Investments Commission to establish a "binding framework" for the regime by July 2018, and for penalties to be introduced for non-compliance.
The data would include customers' transaction history, account balances, credit card usage and mortgage repayments and will also apply to small business data.
This will assist fintechs specialising in a variety of banking products including online lenders, payments and new SME banking outfits that match product prices to customer risk.
The fintech and startup community have backed the calls for the new regulations.
The Australian Financial Review reported the CEO of lobby group Fintech Australia, Danielle Szetho, saying: "If we can create an agreed standard that will stop banks using security and privacy as an excuse for why they will not allow this to happen, then implementing it through APIs will make it seamless for consumers.”
Meanwhile, Lachlan Heussler, managing director of online business lender Spotcap said: "In an open data environment, we will begin to see more innovative financial products with transparent pricing structures.
"Consumers and SMEs will be empowered to make more informed financial decisions, and it will enable alternative lenders to assess risk more efficiently and provide an enhanced experience to clients."