Fintech Australia argues that if banks were required to open their customer data to competitors, economic growth would be bolstered through financial services competition and customer service would be improved by allowing fintech companies to create better-priced financial products.
The Productivity Commission’s review into ‘Data availability and use’ is looking at whether a system of “open APIs” [application programming interfaces] could be created along the lines of a new regime in Britain to allow competitors to plug directly into data sets held by banks, such as transaction account activity.
But calls are being resisted by the nation’s banks, which say a compulsory open-data regime would be costly to implement and could raise security concerns. The banks say data policy is best determined by the market. Fintech Australia says data policy can be a tool for boosting competition.
In its submission to the commission, the Australian Bankers’ Association acknowledges that increasing access to data could create more targeted and tailored products but said this should be allowed to occur organically.
“The evolution underway in data sharing suggests that government intervention to mandate the release of private data, or to interfere in commercial transactions that underpin the emergence of market solutions, may be unnecessary,” the ABA said.
But Fintech Australia, on behalf of 25 start-ups, data aggregators and venture capital investors, says an “open banking API” standard would increase productivity, reduce the cost, time and effort required to switch banks, and would “empower consumers to use their data to be able to make better financial decisions”.
Separate submissions by the ABA, Commonwealth Bank of Australia, ANZ Banking Group, Insurance Australia Group and the Australian Securities Exchange all urge the government to not regulate to mandate open-data sharing.
The ABA said building an open banking standard was “likely to be a very costly exercise for banks” and would provide competitors with access to a valuable commercial asset. “The banking industry notes that business and customer relationship data are a valuable commercial asset and are subject to extensive investment, privacy and other obligations,” the ABA said. “Changes should not be made that may affect the ability of businesses to manage their data in the interests of customers and owners.”
In an interview last week, ANZ Banking Group’s new head of digital banking Maile Carnegie said that, when considering data-sharing with fintechs, banks would need to be cautious about customer permission, privacy and data security, and might not be willing to give up the data that provided banks with their competitive advantage.
ANZ said in its submission that it had two main issues with the proposal to mandate open APIs. “The first key issue is that it is possible that mandated availability of data could undermine individual privacy and dignity through impaired data security … [the] second key concern is that mandated availability could undermine the legitimate interest which data custodians have in the investment they have made in establishing and maintaining data sets.”
Data important, but private
CBA made similar arguments, saying it had committed material and grown sustained funding to secure and maintain its data assets, reflecting the “systemic importance of data to building and maintaining trust in the financial services sector”.
But “without the ongoing policy settings to encourage this investment Australia will be at risk of falling behind in financial services innovation to global peers,” CBA said.
It also pointed to potential for loss of control misuse of data, which “puts at risk the ability of the Commonwealth Bank to continue to offer this level of assurance” in terms of providing full refunds to customers who are subject of fraud.
CBA told the Productivity Commission it is “of the firm view that growth in innovation and a strong finance sector can be achieved without the need for additional regulatory intervention regarding data access”.
“Over-regulation of data access rights could in fact be counter-productive and also potentially damaging to innovation in Australia”, CBA said. Private sector datasets should not be subject to mandatory open access but “rather, data-sharing arrangements for private sector datasets should be driven by market forces”.
The Australian Financial Review reports on Monday that US-based fintech Acorns, which is growing at rapid pace, and CBA are battling over password assess which Acorns says is anti-competitive.
Open APIs can be secure
Fintech players said that any concerns about security are valid and would not be compromised by an open-data regime. “We say that security and consent are vital considerations. However, we maintain that the mechanisms for security and consent are readily addressed and should be mandated as a single standard along with an open API,” said Tyro Fintech Hub in its submission.
Both CBA and ANZ pointed to tools already provided to customers to access, manage and extract financial transaction data, for example by downloading it as CSV files. CBA said a framework allowing broad access to customer data by third parties “creates privacy and security risks which customers may not be able to understand or control”.
But Fintech Australia said the use of APIs to exchange data “is more robust and more seamless from a customer-experience perspective, and in some cases (depending on whether best practice has been followed to secure the storage of customer login credentials) more secure from a data-privacy and protection standpoint”.
The Productivity Commission – which said in April that digital data should be seen as a key economic resource because it has the potential to lift efficiency, empower consumers, boost competition, drive innovation and make governments more accountable – will release a draft report in early November and provide a final report to the government next March.
CMA makes a push in UK
The issue of start-up access to data is a global one. The Competition and Markets Authority in the UK said last week that banks should be required to implement open banking by early 2018 and to share their data securely with other banks and with third parties, enabling them to manage their accounts with multiple providers through a single digital ‘app’, to take more control of their funds (for example to avoid overdraft charges and manage cashflow) and to compare products on the basis of their own requirements.
“We want customers to be able to access new and innovative apps which will tailor services, information and advice to their individual needs,” Alasdair Smith, the head of the CMA investigation, said earlier this month.
Open data API is not mandated in Germany, Singapore and the United States, but regulators in all three countries are pushing the banks to create more open standards.
ANZ said that, if the Productivity Commission is minded to recommend reform, “it should consider creating a new database right, similar to that existing in the European Union”.
“This new right, which would protect investment in data and databases beyond current copyright law, would encourage the private sector to further invest in data and then make it available. We believe this would facilitate greater data availability more effectively than mandatory requirements allow higher volumes of quality data to be available for uses that benefit society.”
ANZ said it already makes a substantial amount of data available to customers and “we believe that more will become available without policy reform due to competitive pressures and initiatives already underway”.
Author: James Eyers
Source: Financial Review