How CDR can power an innovative, equitable, and responsible financial future in Australia

There’s no doubt that open banking has had a few teething pains since its launch in Australia back in July 2020. Quality of data, slowness of adoption, cost of execution, and cumbersome user experiences are all valid criticisms that have come its way.

In an address to the Committee for Economic Development of Australia on Friday (9 August), Assistant Treasurer and Financial Services Minister, the Honourable Stephen Jones MP, announced plans for a Consumer Data Right (CDR) reset. This will include reducing the issues driving costs and limiting take‑up, changing the consent and operational rules to streamline the consent process for consumers, and improving the experience and accessibility for small businesses. It was also announced that the CDR will expand to non‑bank lending data early in the new year with the intent to be operational by the middle of 2026.

Despite its challenges, at its most potent and when all the components fit into place, open banking’s benefits truly can be exponential. For everyday Australians, it can mean getting into a home sooner, gaining more detailed and up-to-date views of one’s finances, boosting decision making, and improving overall financial wellbeing. Richer comparison data means consumers can get a better understanding of the loans, mortgages, and financial tools that work best for them. And if consumers do decide they want to switch, CDR-enabled instant verification makes the process of changing to new platforms easier and more secure.

Such are its potential benefits to consumers: WeMoney’s recent Financial Wellness Report 2024 revealed CDR has helped its members save on average $333 a month, which equates to almost $4,000 per year, and that the savings opportunities resulting from CDR-enabled seamless switching can save individuals $1,010–$4,665 a year on their home and contents insurance and $1,908 a year on mortgage refinancing.

Benefits to industry, including financial advisers and brokers

Beyond consumers, open banking can be a key enabler of financial innovation, meaning fintechs and financial services like personal finance management (PFM) platforms, lenders, financial advisers, and mortgage brokers can tap into extensive and immediate user-permissioned financial data to be more informed and data-led in their decisions and advice that they give.

For example, in March, Sydney-based wealth tech HeirWealth partnered with open banking technology company Envestnet | Yodlee to streamline the intergenerational wealth transfer process. Following the latest integration with Envestnet | Yodlee, the app will now have connectivity to 20,000 financial institutions globally, which can automatically aggregate into the wealth registry platform.

And, in December, a combined partnership with mortgage broker Effi Technologies, Australia’s largest home builder Metricon, and mortgage broker Loan Gallery allowed Metricon customers to navigate interest rates, build up a deposit, and manage their finances to become a home owner sooner.

The technology has the potential to also offer banks and financial institutions a clear line of sight on the difficulties mortgage holders are facing and extend help before last choice options, like foreclosure, eventuate, and speed up the process of getting people out of bad loans and into better ones.

Steadying uncharted waters and powering financial parity

At its optimum, open banking can be a steadier of uncharted financial waters. Take emerging technologies and services like buy now, pay later (BNPL). Open banking can give BNPL providers a detailed look at debt-to-income ratios, empowering them to make sharp distinctions between high and low-risk borrowers. This results in credit offers that are more finely tuned to reflect genuine financial behaviour and ensures people are only being lent to who are in a financial position to take on the loan.

The technology may also have the ability to close the inequality gap when it comes to financial access and wellness. It is, for example, powering new use cases in the mortgage sector that are democratising home ownership, like property apps that enable users to secure a deposit with as little as $10,000. Modern alternative lenders and PFMs powered by CDR data, are creating more equitable and personalised lending experiences, and increasing financial empowerment, particularly among the younger generation.

Younger consumers, who may not have built up the financial experience of their older peers, now have the tools to be financially savvy. These platforms are purpose-built for younger Aussies and are digitally native – meaning the usability and devices on which they operate truly suit a younger audience. The digital centricity of these tools – and wider financial services – also means almost anyone, anywhere can benefit – making location less important than the bricks-and-mortar days of old. This largely means that whether you’re in regional Australia or one of the major cities, you can access the same quality of financial services.

Continuing to impact Australia’s financial future

CDR has come under warranted criticism. Its roll-out has been far from smooth and it still has a long way to go until its benefits are truly felt. What cannot be underestimated, however, is its potential impact on financial innovation and wellbeing, which will only increase as the technology improves and permeates into more tools and use cases.

Consumers and the finance sector truly tapping into open banking and its benefits – in a perfect CDR world – should help future-proof Australia’s innovative, equitable, and responsible financial future.

Lauren Applegate is the ANZ director of customer success & marketing at Envestnet | Yodlee.

Written by Lauren Applegate

Last Updated: 04 October 2024

Published: 07 October 2024