The first phase of open banking is well and truly live in Australia. With the Consumer Data Right (CDR) introduced in July 2020, consumers can now share their banking data with third party institutions such as other banks, credit unions, fintechs, online lenders and money management apps.
There are obvious benefits for consumers, but open banking is also a huge plus for lenders, with improved speed, accuracy and transparency of data available, creating new ways to acquire – and retain – customers.
‘Open banking’ and ‘CDR’ – is there a difference?
The terms ‘open banking’ and ‘CDR’ are often used interchangeably, but they mean slightly different things.
The Consumer Data Right (CDR) gives consumers greater control over their data, meaning they can share it with trusted third parties and switch between providers more easily. CDR rules were made by the Australian Competition and Consumer Commission (ACCC), with the consent of the Treasurer, and the Treasury will oversee the Consumer Data Right.
As banking is the first industry where CDR has been introduced, we use the term ‘open banking’ to describe this first phase. Eventually, CDR will also be rolled out across other industries, such as energy and telecommunications.
We’ve heard a lot about the benefits for consumers.
When it comes to open banking, the benefits for consumers are clear – greater visibility of and control over their banking data, greater ease of comparison between products and services in terms of both price and quality, and the ability to switch between providers more quickly and easily. But what are the benefits for lenders?
There are also significant benefits for lenders that you may have overlooked.
Benefits for lenders include:
- Speed. Access to customer data is in real time, shared directly with the customer’s consent, which means you can process applications more quickly and efficiently.
- Personalisation. Customer data is more accurate and up-to-date, which makes it easier to leverage your internal data to create a better customer experience and provide personalised offers and rates.
- Compliance. As data is more accurate and timely, complying with responsible lending obligations can become much more straightforward.
1. Faster, more efficient data sharing
With customer data shared directly and in real time, open banking makes it faster for consumers to apply for banking products or switch institutions, and get approved – all it takes is a few clicks to share their data.
This gives lenders the ability to process applications quickly and efficiently, significantly reducing the risk of losing any customers already in the pipeline.
Lenders can be certain of these faster processing times and use them as a selling point, which can also aid in acquisition of new customers.
2. A more personalised experience
With more accurate and up-to-date data comes greater precision, and this can be leveraged by lenders in two ways; to improve and personalise the customer experience, and to offer tailored offers and rates.
The transparency of more accurate customer data makes it easier for lenders to recommend products and services that are particularly relevant for their customers.
3. Meet your responsible lending obligations
With more precise transactional data, it’s possible to make better decisions about the suitability of a loan for a particular customer.
Open Banking provides CDR information quickly and digitally. When combined with data enrichment capabilities, such as illion’s categorisation and affordability analytics, lenders can quickly identify spending behaviour on specific income and expense buckets and identify any red flags.
illion Open Data Solutions and Credit Simple
Both illion Open Data Solutions (ODS) and Credit Simple have been accredited by The Australian Competition and Consumer Commission (ACCC) as data recipients under the Consumer Data Right.
At the heart of it, open banking brings greater speed, accuracy and transparency to the banking industry, and we see it as boon for lenders, as well as for consumers.