Open Banking. Reshaping the financial services landscape

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1 Open Banking Reshaping the financial services landscape re read

2 What is open banking? Following similar moves across the globe, Australia is in the process of developing policy to support an open banking regime. This will create a new financial services environment where consumers can take control of their financial data and, with consent, share this information with other banks and third parties in return for new products, better rates or improved financial services What does the Australian Government hope to achieve? The Australian Government is looking to establish strong financial outcomes (better convenience, choice and access) for consumers, maintain financial stability, increase competition and market participation, and increased innovation Productivity Commission October 2016 Australian Productivity Commission draft report on Data Availability and Use December 2017 Recommended mandatory CCR reporting deadline (subject to 40% accounts not being reported by 30 June 2017) Coleman Review November 2016 First report from the Standing Committee review of the Four Major Banks. Stronger line on data sharing, recommending implementation by 2018 April 2017 Second report with recommendations Government response May 2017 Announcement of Open Data in Budget release. This will be a major change in the way Australians use and benefit from their data, and open the way for better services, more choice of providers and lower prices. Scott Morrison Mid 2018 Possible implementation date 2 Open Banking Reshaping the financial services landscape

3 Coleman Review: Recommendation 4 The committee recommends that Deposit Product Providers be forced to provide open access to consumer and small business data by July ASIC should be required to develop a binding framework to facilitate this sharing of data, making use of Application Programming Interfaces (APIs) and ensuring that appropriate privacy safeguards are in place. Entities should also be required to publish the terms and conditions for each of their products in a standardised machine-readable format. The Government should also amend the Corporations Act 2001 to introduce penalties for non-compliance. What don t we know yet? The Independent Review into Open Banking is still considering: What data should be shared, and between whom? How should data be shared? How can we ensure shared data is kept secure and privacy is respected? What regulatory framework is needed? Open Banking Reshaping the financial services landscape 3

4 hat i pact ill pen an ing have n the ar et Open banking will change how consumers engage with their banks and financial services providers, introduce a new channel, and promote innovation and competition in financial products. We anticipate that new consumer empowerment, data availability and security capabilities introduced by open banking will trigger industry change and unlock innovation while driving competition. Nondiscriminatory data services Role of banks B ank s to assu me new r o l e as i nf o r mati o n p r o v i d er s o r d ata c u sto d i ans D ata sh ar i ng to er o d e b ank s c o mp eti ti v e ad v antag e r eq u i r i ng i nno v ati o n to tr ad i ti o nal ap p r o ac h es B ank s at r i sk o f b ei ng r el eg ated to b ac k - end c ap i tal h o sts O p p o r tu ni ty f o r new r ev enu e mo d el s Competitive landscape D ata av ai l ab i l i ty to er o d e b ar r i er s to entr y C o mp eti ti o n to b ec o me i nno v ati o n- l ed ; new u se c ases to emer g e B ar r i er s b etw een i nd u str i es to er o d e; new entr ants ex p ec ted f r o m ad j ac ent i nd u str i es I nc r eased u se o f p ar tner sh i p s and c o l l ab o r ati o ns to b o th g r o w and d ef end r ev enu e P ay ment i nter c h ang e f ees ex p ec ted to er o d e, d r i v en b y p ay ment i ni ti ati o n c ap ab i l i ty Evolving expectations Consumer empowerment Data access and portability Open Banking Evolving compliance requirements Trust Security and controls Consumer preferences new u se c ases and p r o d u c t i nno v ati o ns G r eater emp h asi s to b e p l ac ed o n p er so nal i sati o n, p r i c i ng, c o nv eni enc e and u ser ex p er i enc e B ank s to b e j u d g ed o n so l u ti o n q u al i ty, p r i c i ng, tr u st and sec u r i ty as d ata c u sto d i ans N ew p ay ment p r ef er enc es to emer g e d r i v en b y p u sh p ay ments C o nsu mer s to h av e g r eater c h o i c e Regulatory dynamics O p en B ank i ng r eg u l ati o ns may ev o l v e o v er ti me N ew o r g ani sati o nal sti p u l ati o ns, g o v er nanc e p r o c esses and l eg i sl ati v e r eq u i r ements may emer g e Safeguards and protections 4 Open Banking Reshaping the financial services landscape

5 hat ill pen an ing ean r Open banking presents both a strategic risk, in complying with regulations and maintaining your market position, and a disruptive opportunity. Open banking is expected to be the catalyst for a new industry of personal finance management platforms that will aggregate a full view of a customer s financial position, regardless of who they bank with. This will allow consumers to find the best options for their situation at any given moment; for example, they will be able to easily identify and move their money into the highest interest accounts available at the time. Open banking has clear benefits for fintechs, which will gain access to consumer data. There s a real danger that profitable customers could be lured away to competitors, leaving banks as back-end capital hosts. Importantly, banks have significant advantages over fintech start-ups, including large customer bases, access to customers data and access to capital. But there is also the risk that the well-capitalised global technology companies could use the regime to pick off profitable areas of your business. Maintaining a trusted open banking ecosystem will demand rapid innovation cycles, increased technology integration, enhanced security, and an updated privacy and liability regime. hat d need t d n Responding to open banking is about more than compliance. You need to start assessing the likely impact of open banking on your customer experience and product design, and prepare for the technology integration required to take advantage of open banking. Identifying and seizing opportunities will require rapid responses to innovation, alliances and technology change. For example, to assume its new role as a public API provider or data custodian, your bank will need enhanced architectural, technical and governance capabilities. This includes API management capabilities that integrate with existing banking architectures. Open banking relies on a trusted environment. This will require a clear view of the strategic risks and controls within the bank, with ecosystem providers and within the industry. Maintaining bank-grade data integrity, system availability and security will be essential. Open Banking Reshaping the financial services landscape 5

6 How can EY help? Drawing on our experience in the UK, where Open Banking will be turned on next year, EY is supporting our local clients to pursue strategic growth opportunities, comply with regulatory change and manage risk. We can help you with: Open Banking readiness reviews End-to-end management Customer experience and design Technology, digital and data Global innovation scans and market testing Open Banking Agile platform and architecture integration Regulatory interpretation, risk and control assessments Legal, security and cyber services. Industry partnerships Compliance and legal Security and fraud Why EY? EY combines established global offerings and first adopter experience with a skilled local team. We have been at the forefront of shaping the open banking agenda from the outset, working closely with UKbased and international banks, fintechs and regulators. We served on the original Open Banking Working Group (OBWG), providing initial policy-framing recommendations, and continue to support the Open Banking Implementation Entity (OBIE) in production of the Open API Standards. We are also working with industry bodies to define the payments strategy for the UK and mobilising the industry delivery program. We are working with US and Asia Pacific banks to identify their API platforms and establish an innovation ecosystem to bring new products to market. We have an integrated suite of offerings which supports all aspects of the open banking journey. We have a global open banking innovation centre to co-create and prototype and test solutions. We are already working with clients to mobilise and provide open banking transformation programs. 6 Open Banking Reshaping the financial services landscape

7 Contacts To find out more or to book an Insights Session with an open banking professional contact: Tim Dring Direct: Olivia Willee Direct: Mike Booth Direct: Open Banking Reshaping the financial services landscape 7

8 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com Ernst & Young, Australia. All Rights Reserved. APAC no. AU ED none S This communication provides general information which is current at the time of production. The information contained in this communication does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Ernst & Young disclaims all responsibility and liability (including, without limitation, for any direct or indirect or consequential costs, loss or damage or loss of profits) arising from anything done or omitted to be done by any party in reliance, whether wholly or partially, on any of the information. Any party that relies on the information does so at its own risk. The views expressed in this article are the views of the author, not Ernst & Young. Liability limited by a scheme approved under Professional Standards Legislation. ey.com