EXCLUSIVE: “Breadth and Depth: Open Banking at the Opposite Ends of the World” – Claire Melling, NatWest and Brad Carr, NAB in ‘The Fintech Magazine’

The UK’s NatWest and National Australia Bank recently compared and contrasted the two countries’ approach to open banking and came up with five recommendations for the next stage of their respective journeys. Here, the report’s authors, Claire Melling and Brad Carr, look at what the future could hold

Imagine a world where your savings automatically move to the highest interest rates and your borrowings to the lowest.Where your energy requirements seamlessly migrate to those providers offering the cheapest or greenest, or a mix of both. And where your consumer purchasing history, be it as individuals or companies, is constantly used to pinpoint the best deals of the day for you.

These are but a few examples of how an open banking/open data ecosystem could transform the way we run our lives. As far back as 2020, McKinsey predicted that ‘the boost to the economy from broad adoption of open data ecosystems could range from about one to 1.5 per cent of GDP in 2030 in the European Union, the United Kingdom, and the United States’.

And it continued: “All market participants benefit, be they institutions or consumers – either individuals or micro, small, and medium-sized enterprises (MSMEs) – albeit to varying degrees.

“It’s a path along which the first major steps have already been trodden; where empowering consumers with control of their data has indeed increased competition and innovation. The UK was a pioneer when it set up an Open Banking mandatory framework in 2017, which enables customers to securely share their banking data with third parties and also enables third parties to make payments on their behalf.

Based on the existing legal frameworks of the EU’s General Data Protection Regulation (GDPR) and the revised Payment Services Directive (PSD2), the UK’s API-based structure was introduced by the Open Banking Implementation Entity (OBIE) – which is financed by the UK’s nine largest banks and overseen by the Competition and Mergers Authority, the Financial Conduct Authority and the UK Treasury – to ensure a degree of consensus and interoperability.The depth and immediate functionality of the framework has so far led to more than seven million consumers or businesses using Open Banking-enabled products to manage their money and make payments, with payments usage now growing at 10 per cent a month.

Australia, another early mover, founded its Consumer Data Right (CDR) regime in mid-2019, modelled on the UK’s Open Banking framework. But rather than being confined to the sharing of banking information and to payment services, the CDR has adopted a whole-of-economy data portability framework with banking the first sector to be rolled out, followed by energy in 2022, and telecommunications in 2023.

Although widely lauded as being prescient in the breadth of its overall ambition, the Australian model is based on its own legislative framework, which critics argue is over-complicated and costly for participants as it has created two distinct but sometimes overlapping data protection regimes that are governed by whether data was sourced within CDR regulations or outside of them, which then invokes the Privacy Act 1988.

“Australia should learn from the UK’s success in building upon existing legal frameworks and infrastructure”

As a ‘read-only’ function, which only allows for insights rather than action initiation, such as payments, CDR has had a rather slow uptake thus far. And although that is expected to increase with the additional data provided by the energy and telecommunications sectors, the real fuel on the fire will be when the Australian government’s aim of increasing functionality by introducing action initiation comes into being.

THE ROAD AHEAD

So, how should the UK’s and Australia’s open banking systems develop? A joint report by major UK bank NatWest and the National Australia Bank (NAB) makes five key recommendations:

• Ensure global interoperability and look beyond a sectorial approach to open data
• As Australia extends CDR to action initiation and across sectors, it should learn from the UK’s success in building upon existing legal frameworks and infrastructure, rather than duplicating regimes
• Australia should look to mirror the UK’s collaboration between industry and regulators, including considering a role for a purpose-built implementation authority, like OBIE
• The UK should aim to follow Australia’s lead in extending open banking to an economy-wide data sharing regime
• Both countries should embed a role for digital identity, without which the regime will not be able to scale and provide the promised benefits to consumers and the economy

Claire Melling, head of Bank of APIs at NatWest, and Brad Carr, who leads risk and governance for the digital and data businesses of NAB, were co-authors of the banks’ joint report and believe that lessons can be learned from the experiences of both countries.

“The UK has probably done a better job of respecting existing areas of legal framework and avoiding some of the potential areas of duplication,” says Carr.“But also the UK has been a pioneer in a lot of ways and among those is having a dedicated agency with specialist skills in the form of the Open Banking Implementation Entity.

“The UK should aim to follow Australia’s lead in extending open banking to an economy-wide data sharing regime”

“In Australia, we’ve been a bit more fragmented, with our National Treasury team doing more of the policy, whereas our Competition Commission does more of the monitoring and enforcement. And I think there are some learnings we can take from the UK model that has probably helped to catalyse [open banking] in a lot of ways.“If there’s one criticism I sometimes hear in Australia, it’s that we’ve tried to do privacy law, something like GDPR, at the same time as we’ve tried to do the Consumer Data Right and that creates some challenges.

“I’m encouraged that we’re sorting through those issues now, and I think we’re going to land in a much better place, but it has been an interesting journey, and the UK has probably approached that in a more methodical fashion.”

For Melling, the major lesson for the UK is that, having had success in creating action initiation ‘depth’, it now needs to embrace the Australian model of ‘breadth.’

She says: “The UK has done a good job with depth, but when we start to be able to build out a more holistic view of customers’ portfolios – not just their finances, but their lifestyles, too – that’s when we can start to get some compelling propositions, that really help customers to make decisions. “That’s something we should be learning from the Australian model and is a real discussion in UK government at the moment.”

The Data Protection and Digital Information (No 2) Bill recently tabled in the UK Parliament already proposes to ‘allow for the sharing of customer data, through smart data schemes, to provide services such as personalised market comparisons and account management’.

Meanwhile, a new report by the UK’s Joint Regulatory Oversight Committee for Open Banking provides a roadmap for its future development by creating a sustainable, safe and scalable ecosystem; offering more and better services – particularly for payment methods – and adopting a scalable model for future data-sharing requirements.When it comes to digital identity, both Australia and the UK are getting closer to a national digital identity framework.

While not as ambitious as UK Finance chair Bill Wigley’s call for the government to develop a super app to provide an economic digital identity, including credit ratings, know your customer (KYC) information, and anti-money laundering data, the Data Protection and Digital Information (No 2) Bill does seek to ‘establish a framework for the provision of digital verification services to enable digital identities to be used with the same confidence as paper documents’. The Australian federal government is also expected to lay out new legislation by the end of 2023 to introduce a national digital identity framework.

IDENTITY ISSUES

Melling and Carr agree with the need for digital identities. However, they suggest that banks themselves as ‘trusted institutions’ who already hold most of the data are perfectly placed to provide them.

“Within the Australian market, there were two major cyber breaches last year, one at our number two telco, and one at a private health insurance firm. Lots of customer records, identity data, was leaked,” Carr says. “So we have consumers, on the one hand, with an increased consciousness of their data security, and the risk of identity theft, who probably would prefer to minimise the amount of data they need to transfer and submit, to do a transaction.

“On the other hand, we’ve businesses who need to be better at how they secure and protect that customer data, under our Privacy Act. I’m sure there are a lot of firms that have taken photocopies of passports, and kept them in a filing cabinet, scanned a PDF and put it on an unsecured server. It would be better if they didn’t have to take that identity data in the first place.

Customers have been educated over the years to not share their data, and now, all of a sudden, they’re being told to. So, as an industry, we need to do a really good job of explaining the benefits to them

Claire Melling, NatWest

“As a bank, with both of those sets of customers, we really feel obligated to step forward and provide the service, because we have already KYC’d that individual, we can provide an attestation to the business. We can provide a much greater level of security for both sides of that transaction and help lift the economy. But it’s all driven by that same principle: give the consumer empowerment of what particular data attributes are shared with whom.”

Melling agrees. “Banks have a history of being trusted institutions, and, when you pair that with a willingness to innovate and to partner, that puts us in a strong position to be able to support customers.”That element of trust is also key to overcoming a resistance from some customers against sharing their data.

“Banking customers have been educated over the years to not share their data, and now, all of a sudden, they’re being told to,” Melling says. “So, as an industry, we need to do a really good job of explaining the benefits to customers of sharing that data, and why it’s safe for them to do that now.“I think that will start to come, particularly in the UK, as we look to open finance and start to build that really holistic view of customers’ finances, including pensions, savings, investments – all of that great data.”

DATA CONVERGENCE

Carr believes the benefits will become self-evident. “It’ll give consumers the opportunity to bring their datasets from different places together, where new insights can be found, and new products and new opportunities can be offered.”

He points to the climate change agenda as a compelling example of how better data sharing can deliver clear benefits.

“How we achieve carbon neutrality is important. We do that through being more efficient with energy, embracing renewables. So, the ability to bring customers’ energy data and financial data together makes us excited as a bank,” says Carr. “We can analyse and understand how many solar panels a customer needs on their house, what size battery they need, and then put together the financing package for them or work out how they incorporate it with their mortgage.“I see a lot of opportunities that can really only be enabled by bringing different sets of data together.”

NatWestThe ability to bring customers’ energy and financial data together makes us excited as a bank… we can analyse how many solar panels they need, what size battery, and put together the financing package, or work out how they incorporate that with their mortgage

Brad Carr, National Australia Bank

For Melling, embedded finance – bringing services to customers through channels that a bank doesn’t necessarily own – is another key outcome of better data sharing. “It makes it a far more seamless customer journey when you’re not having to log in somewhere else in order to make a payment but doing that in the journey that you’re already in,” she points out.

THE NEXT STEPS

So where do they think their respective countries’ policymakers should focus now?

“Australia has been a leader in extending into other sectors, I want that to see that accelerate across the whole economy,” says Carr. “That’s my big ask of them. It’s great that we’re going into energy companies and telcos. I think insurance and pension funds will come, but I want to see the tech firms included, and the social media companies as well.

“I want to see the customer empowered across all of their data, wherever it might sit, at whatever firm, domiciled in whatever sector across the broader economy.”

Melling sees the prioritising of high-value use cases for the customer as being essential to communicate the advantages of an open data economy and promote wider and faster adoption of open data services. “It’s about how we enable account-to-account payments, how we close the savings gap and how do we start to offer lending to SMEs through APIs.”

They both agree that deepening collaboration with fintechs is needed as open banking expands into open data with security at the core of every new use case.

“There’s a great opportunity there for us all to be working together,” concludes Carr. “These are all shared problems for the economy. So my call to action would be to join us in that mission

This article was published in The Fintech Magazine Issue 28, Page 30- 32