Open banking is coming – what it means for data-driven businesses
A move by the Government to mandate a Consumer Data Right could make switching providers easier and spur innovation in delivering data-driven services.
Imagine being able to take your entire banking history with you when you switch banks, allowing your new provider to immediately understand your needs and deliver services accordingly.
What if you could easily feed data from your Kiwisaver, share portfolio, and other investment data into one app so a financial advisor can get a full snapshot of your wealth and make recommendations to grow it?
Wouldn’t it be great if you could pool data on utilities such as electricity, water, and broadband, so a clever algorithm can suggest ways to optimise your use of them – and help you choose the cheapest and most suitable providers?
At the moment, doing these things is clunky because your data is spread across numerous companies that guard it jealously. In a data-driven world, a company’s insights about you is the key thing that gives them a competitive edge.
But too often, this competition isn’t delivering results for us as consumers. We are kept in the dark, our own data difficult to access and understand. This is our data, but at the moment, most of it stays with service providers when we up stick and leave.
That is set to change. The Government this week said it would introduce legislation and a framework for a Consumer Data Right, following in the footsteps of countries including the United Kingdom, Australia and Singapore.
“Consumers should be in the driver’s seat when it comes to how their personal information is used by third parties,” Commerce and Consumer Affairs Minister David Clark said on Tuesday.
The Government will build the framework for the CDR this year ahead of introducing legislation to support it next year. So how will the roll-out of a CDR work and what difference will it make?
It will start with banking
Clark has signaled that the CDR will develop sector by sector with banking likely to be the first cab off the rank. This is where the UK has focused efforts quite effectively and where Australia also started. Banks are quite proficient already at handling and sharing sensitive financial data so this is the obvious place to begin.
It’s also an area where a CDR could make the biggest difference. There are a lot of new, innovative fintech start-ups working with artificial intelligence, blockchain, and other technologies to reinvent financial services. With better access to data, they will be armed with the insights to offer new types of data-driven services.
It also ushers in the concept of open banking, where you don’t necessarily have to go all-in with one banking provider. You may have your mortgage with one bank, shares and Kiwisaver investments with another, and your business-related banking with a new digital-only bank. One app and service layer could stitch it all together giving you visibility through a digital dashboard.
Once banking is in the CDR, a wider range of financial institutions would follow, then other big sectors such as energy and telecommunications utilities.
Covid has complicated the picture – data sharing can help
The pandemic required organisations to work together to help citizens like never before. This was especially true across government, but also across the private sector too. It revealed the deficiencies in data sharing which slowed down delivery of service and left consumers frustrated when they most needed support.
Because each provider has privacy policies preventing them from sharing customer data, it was very difficult for organisations to work together to tackle the complex set of issues people were facing.
Governments realise there’s a better way of doing things that involves giving consumers the right to choose to share their data. It means that in future, with the CDR in place and when major economic and social factors cause disruption, as Covid-19 did, businesses will be able to share data that can help consumers get the help they need.
Compliance is key
“Any data shared through the Consumer Data Right will only take place with a person’s informed consent, and would be strictly used for the reasons agreed upon,” Clark pointed out this week.
“For example, if a person was seeking financial advice, they could ask their bank to share data, such as transaction information, with their chosen adviser,” he added.
Any CDR will need tight compliance to have integrity and trust. It’s noteworthy that most CDR frameworks allow for a customer’s data to be made available for sharing with trusted parties, but not data a service provider produces from having access to that data. This is an important provision to protect the intellectual property of institutions like banks, who are perfectly entitled to glean insights from the data they hold on hundreds of thousands of customers.
We just want our data, in an easily accessible and transferable format. The Australian CDR has a system of accredited data recipients (ADRs) who are vetted and approved to receive data on behalf of consumers. We will need an equivalent system, but it has to be more streamlined than what the Aussies have produced, which has been slow in attracting new ADRs due to the onerous compliance involved. The Australian Treasury has recommended changes be made to the scheme, involving allowing banks to recommend affiliated companies as ADRs.
“It’s also my intention that the consumer data right will work hand-in-hand with the Digital Identity Trust Framework announced earlier this year. It’s that piece of work which sets out the rules for the delivery of digital identity services,” Clark said.
That will allow providers who meet the requirements of the Digital Identity Trust Framework to become recipients of consumer data.
Opportunities for innovators
Every financial institution, telco, and energy provider is currently looking at how their IT systems will allow the data sharing that the CDR enables. There will therefore be opportunities for technology integrators and application developers to work with these institutions to help them make this transition while meeting the CDR’s data safety and privacy requirements.
The use of cloud platforms will likely play a big role in this transition as a useful way of facilitating sharing of large amounts of data. Accredited data recipients will need help setting up and managing these systems.
The second area of development will involve new and existing players coming up with innovative services to best make use of this newly mobile data. Data analytics platforms as well as visualisation tools and a new suite of bespoke applications will be required to make the most of this liberated data. That’s where the value will really be added.
Widespread buy-in essential
Australia officially introduced its CDR in July last year in the midst of the pandemic. Others have been around longer, but have been slow to transform industries. A successful CDR will require good buy-in from the participating industries as well as from consumers. Education will be key, as well as a streamlined, easy to understand system that encourages uptake for everyone concerned.
Getting the CDR framework right is crucial. This is a once-in-a-generation opportunity to unlock innovation at a fundamental level. The opportunities for the tech community to assist with this is potentially massive.
Find out more about the Consumer Data Right here.
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