Open Banking and Australia’s Data Sharing Regime: Six Lessons for Europe
As the phenomenon of open banking spreads, countries had better work together and facilitate data sharing across jurisdictions. Ross Buckley, Natalia Jevglevskaja, and Scott Farrell write that the sooner national policymakers get on the same page, the more control consumers will have over their data at home and abroad, and the more data sharing will be able to spur needed competition in savings. They highlight six lessons learned from the Australian experience that could help policymakers around the world establish robust data-sharing frameworks.
Open banking is becoming a global phenomenon, promising to transform financial services by enabling safe and fast sharing of personal data. The idea of open banking originated in Europe and is gaining traction in the United States, but Australia is well ahead of those countries and is now rolling out data sharing to other sectors of its economy. Our recent article argues that other countries have much to learn from Australia’s experiences with open banking and data sharing more broadly.
What is Open Banking?
Open banking is generally understood as the right of consumers to share their bank details with third parties of their choice so that they can offer better value for money. It started with the revised Payment Services Directive (PSD2) in Europe in 2015. Since then, the UK has led its development internationally. Yet, although Europe was a pioneer in this development, Australia applies the concept of consumer data portability much more broadly. Its Consumer Data Right (CDR) scheme, introduced in 2019, is unique in its intent to implement economy-wide data sharing in banking, energy, telecommunications, pensions, insurance, groceries, health, education and other sectors.
Six lessons from Australia
We suggest there are five clear lessons to be learned from the Australian experience to date, plus a sixth lesson, which has yet to be proven, but which we believe does exist.
1. The opportunity to extend open banking to open finance
Although open banking frameworks are designed to make payments more competitive, transparent, secure and versatile, they often remain limited in that a range of financial products and services (e.g. mortgages and savings accounts) are not often not included. In contrast, Open Banking in Australia is much broader in scope and requires access to 29 different bank accounts (including savings, debit, mortgage and business accounts).
The Australian approach is advantageous. For example, including mortgage accounts in a consumer-driven data sharing regime facilitates more competitive home lending. Whether they include banking products or other financial products (such as insurance, pensions, etc.), open finance applications enable a wider range of services tailored to consumer preferences and needs.
2. The opportunity to extend the data sharing regime to other economic sectors
Other nations’ ambitions to become leaders among digital economies would be well served by comprehensive data-sharing legislative and regulatory frameworks that apply broadly to all economic sectors. Following Australia’s lead, other countries should expand data sharing beyond finance to extend the benefits of increased competition, innovation and efficiencies to other sectors. , such as energy, insurance and pensions.
3. The need for the process to be led by a political agency
Another quiet lesson from the Australian experience is that the development of cross-sector data sharing processes should be driven by a political agency, not a regulator. Australia has learned the hard way that designing a radically new system is not just about regulation, but requires a holistic understanding of the national economy and its desired path. Leading this process requires capacity and experience in analyzing policy issues from an economy-wide perspective and requires more than a regulatory mindset.
4. The need for data sharing to be a “living framework”
Whatever sectors will be involved in national data sharing frameworks, these frameworks must be “living”, that is to say ready to admit their mistakes and changes. Indeed, changes in consumer and business preferences, and in particular technological innovation, are likely to occur faster than regulatory regimes develop.
Although evolving data sharing regimes face many challenges, Australia has made continuous improvements to its system by repeatedly engaging in the constructive criticism provided by stakeholders. While this may be easier for a medium-sized economy like Australia than for regulatory behemoths like the US or EU, there is nevertheless a clear need for regulatory frameworks that are clear enough, but not too detailed. , and which appropriately favor experimentation over heaviness. ex-ante regulation.
5. The need for timely consumer education
While consumers are at the heart of evolving data sharing policies, they will only be able to effectively exercise their rights once they understand them. However, as the Australian experience shows, leaving consumers out of the consultation process on Open Banking development can lead to poor awareness and lack of engagement. A lack of awareness represents a significant barrier to consumer adoption and therefore effective consumer education should not be put off too long.
6. The potential of initiating action to incentivize fairer trading relationships
Extending data sharing to other industries offers the opportunity to remove loyalty penalties and restore a business morality that seems to have often disappeared in modern business.
Consider the following example. Once CDR is extended to the energy sector in Australia, consumers will be able to easily compare their current service to what another provider is offering based on the consumer’s precise consumption habits. If one prefers the new arrangements proposed by the competitor, it is enough to click on another button, to initiate the transaction and to change supplier. In this way, initiating action under a data sharing regime will make practices – such as charging new customers lower prices on mortgages or electricity than existing customers – for the mostly ineffective. There will be no possibility of retaining a client once they find out that they are being exploited, because they will be gone. This will force businesses to be fairer than many are today.
Looking Ahead: From “Global Leaders” to “Strong Peers”
As we demonstrate in our article, Australia’s experiences to date offer valuable lessons for others. While many countries aim to become “world leaders” in data sharing, a more valid goal may be to focus on becoming “strong peers”. Establishing strong national data sharing frameworks is a challenging task and will remain a learning-by-doing endeavor for years to come. However, because data inherently defies borders and wants to flow freely, approaches to regulating it need to be consistent and well thought out across jurisdictions. The sooner national decision-makers get on the same page, the more control consumers will have over their data at home and abroad, and the more data sharing can drive the necessary competition in economies.