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Swati Saha

Changing customer expectations, regulatory mandates, and emerging technologies are driving the financial sector towards open banking, a new kind of digital ecosystem. Open banking, as a concept, thrives on sharing personal financial data in a secure manner with customers’ consent. In continuation, the Australian Government introduced Consumer Data Right (CDR) in November 2017 to provide consumers more control while sharing their banking data with third parties. Consequently, Australian banks must comply with IT, security, reporting, and consent requirements, as per CDR regulations. This is disrupting the Australian banking industry and impacting the country’s digital economy.

CDR adoption With more than 100 Fintech institutions coming up, 2020 has been a remarkable year for the Australian Fintech industry. CDR is now driving growth and innovation across the financial sector by offering new opportunities. Until April 2021, five banks, including the top four players, have been registered in the Australian Competition and Consumer Commission (ACCC) as data holders, and ten financial institutes have become Accredited Data Recipients (ADR). To encourage participation and increase CDR adoption, the ACCC recently amended CDR rules for expanding its benefits to more businesses, including companies and partnerships.

Business impact of CDR – the bigger picture

CDR’s impact can resonate within the Australian geography and beyond:

· Banks are adopting new-age business models by collaborating with non-banking organizations to address customers’ purpose-specific needs. These partnerships create a unique business ecosystem where the bank’s domain expertise combines with Fintech’s innovative start-up mindset to develop new products and open new revenue channels. For instance, by leveraging open banking data, banks and Fintechs like Meniga and Personetics are providing personal finance management offerings. In Australia, Frollo is popular for its CDR-powered financial wellness app, while X15 ventures, powered by the Commonwealth Bank of Australia (CBA), is building next-generation digital solutions for 15 million CBA customers in partnership with entrepreneurs.

Recently, banks have demonstrated an interest in becoming ADRs so that they can create propositions and provide differentiated data-based customer experiences. CBA has become the first data recipient under the CDR scheme, followed by the Regional Australia Bank.

· While enabling responsible lending, CDR also provides a significant opportunity for Fintechs to assess the creditworthiness of prospective borrowers and helps in credit decisioning by acquiring the customer’s financial data (transaction history, mortgage details, etc.) from banks.

· Open banking initiatives are also inspiring banks to consider the small- and medium-sized business (SMB) segment as a new growth avenue by building a comprehensive suite of innovative digital offerings and positioning themselves as business partners to next-gen SMBs. By leveraging open API ecosystem data, banks are now replacing their traditional credit assessment processes with AI-based credit models to improve the credit lending process of SMBs.

· Countries like Brazil and Mexico have drawn inspiration from CDR while outlining their own open banking regulations. In following CDR’s footsteps, UK is now moving towards open finance, the next step in their open banking journey.

Technology impact of CDR

The CDR implementation has a cascading impact on a bank’s overall technology roadmap and acts as a catalyst in its digital transformation journey. Banks are using this opportunity to streamline their API management capability, including restructuring and realignment of current architecture, the establishment of new architecture (if required), microservices adoption, API management, and security.

Banks and other financial institutes are architecting Identity Access Management (IAM) solutions and data platforms to address CDR-specific requirements. These solutions can be extended horizontally across the enterprise. CDR opens an opportunity for banks to conduct pilots on technologies like cloud computing, augmented reality (AR), data analytics, etc., without impacting the bank’s traditional technology ecosystem. This can be used as a trust builder for enterprises when it comes to new technology or methodology adoption.

Way forward

The future of CDR can be foreseen in different stages of maturity.

· Emerging stage: Challenger banks and neo banks are responding to the technology evolution at a greater speed than traditional players. CDR is giving traditional banks an opportunity to stay relevant and provide purpose-driven services to their customers.

· Matured stage: Banks have the scope of monetization by providing voluntary data to ADR. Voluntary data also provides opportunities for innovation of services offered within the CDR regime. Currently, CDR use cases are limited as it only allows read access. CDR can be extended to include action initiation, including managing and closing products, payment initiation, etc.

· Advanced Stage: CDR is expected to be an industry-agnostic data-sharing standard across Australia, providing a foundation for the digital economy. The ACCC has already taken steps to push CDR across other non-banking sectors like energy and telecommunications to support a data-driven economy.

· ‘Nirvana’ stage: CDR can be envisioned as a borderless data-sharing standard, helping enterprises to expand beyond geographies and provide frictionless customer experiences.

CDR supports data-driven economic growth by encouraging the development of innovative purpose-driven products. It has the potential to blur industry boundaries and enhance the Australian economy. For achieving this, regulatory institutions, banks, and other players must raise end-user awareness about open banking and build consumers’ financial literacy, which will also help improve CDR adoption.

About the author

Swati Saha
Swati Saha is a domain consultant in the Open Banking Strategic Initiative group of the Banking, Financial Services, and Insurance (BFSI) business unit at TCS. She has over 14 years of experience in retail banking, IT, and consulting, with expertise in open banking and next-gen digital banking. Swati is an intrapreneur who designs next-gen digital propositions as part of a garage team operating as a startup within TCS. She holds a master’s degree in software engineering from Jadavpur University, Kolkata, India.
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