Jemima Moore

April 11, 2022

The Bottom Line of Open Finance


With Open Banking well underway, the dates set and things ready to rumble, it’s time to make way for the new phenomenon of Open Finance. 

What’s the difference between Open Finance and Open Banking? 

Open Banking deals with solely banking data. Transferring banking data from Accredited Data Holders (the banks) to Accredited Data Recipients (fintechs like Credfin). 

The banking sector was the first industry in Australia to embrace the newly introduced Consumer Data Right, which was developed in July 2020. The term Open Banking was used to describe the first phase of CDR Data as banking was the main sector that would impact the major milestones in a consumer’s financial lifetime. The Open Finance phase will occur as CDR moves through and expands into various industries like non-bank lending, superannuation, insurance, and non-financial industries like telecommunication and energy. This will in turn open up the scope of the shareable data across different sectors to bring growth and innovation to Australia’s digital economy. 

What makes up Open Finance?

Much like Open Banking, Open Finance will have a focus on consumer consent, interoperable data, rich insights, and third party action initiation. 

Without consumer consent, no data can be accessed, thus making consent the foundation of the Open Finance ecosystem. Consent will enable more efficient exchange of datasets between industry sectors which can be ingressed digitally and thus increases the efficiency and security upon which a company can deliver products and services to a consumer. Consumer consent will be driven and presented to a user through a consent framework, which will showcase a uniform user experience and outline the use of the data accessed, the duration of the access and ‘deletion of data’ policies. A consumer dashboard has the potential to be born from this initiative, which will contain everything the consumer needs to know, including consent and ability to revoke consent  all in one simple place. 
Interoperable data is integral to the Open Finance ecosystem. The sharing of datasets by different industry sectors will allow for more streamlined and efficient products and services

which can be delivered to the client. However, transaction data is limited in its application without being associated with a consumer. Digital identity is a key part of Australia’s focus on a digital economy in 2030, therefore it has to have interoperability with CDR data which currently does not contain consumer identity information. 

Transactional data is nothing without financial insights. Data analytics provides a deeper understanding of the transactional data that is available to fintechs like Credfin. This includes, but is not limited to, income verification, which provides both quantitative and qualitative analysis of different sources of income, helping an organisation gain a deeper understanding of the consumer’s income source.

It doesn’t stop at insights. Open Finance will allow Accredited Data Recipients and trusted third parties to then perform actions with this data, also known as ‘write access’ or ‘action initiation’. Action initiation on behalf of the consumer is a major component which allows automation of products and services, and innovation in different industry sectors.The most common action with data and access to bank accounts is to perform payments on behalf of the consumer. Action initiation is the next focus within the CDR. FDATA’s Jamie Leach states, “The real magic of CDR cannot be unlocked without action initiation, including payments, so that consumers can instruct third parties to initiate actions on their behalf. It’s imperative in 2022 that we figure out how to make that happen in a low-friction, seamless and secure manner, and agree to the implementation plan.” https://www.linkedin.com/pulse/what-2022-hold-consumer-data-right-open-banking-jamie-k/?trackingId=hz97MX54QSG66t6Ya%2B0FVg%3D%3D 

What are some benefits of Open Finance?

With data transparency to the consumer comes many benefits. For starters, the consumer is empowered to be in control of who has access to data and for how long. A consumer dashboard would have everything at the touch of a finger. Consumers would also reap the rewards of financial knowledge. Products and services they may have once shied away from, as the effort involved in finding new services is substantial, will be displayed to them with ease. More products will be promoted giving users and companies alike a better experience. This too amounts to more competition in the fintech field. A competitive market allows for richer experiences for consumers and spurs on innovation which leads to breakthroughs that benefit the consumer. 

Where is Open Finance at Currently?

The below graph shows where the current CDR is sitting within the different industries and scopes. 

Open Finance is currently in the consultation phase and interested parties are invited to comment on this consultation by submitting a response. Visit this page to submit a response https://treasury.gov.au/consultation/c2022-253782.  

Jemima

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