New customer data legislation paves way for open banking in Australia

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The Customer Data Right (CDR) legislation passed by the Australian parliament aims to provide a legal framework for the country's open banking regime, per Finextra. Initially announced by the Australian government in May of last year, the CDR will allow consumers in the country to direct banks to share their data with fintechs and other third-party providers (TPPs).

Although passed by parliament, the legislation will still need a final seal of approval by the country's financial watchdog - the Australian Competition and Consumer Commission (ACCC) - before coming into effect at the end of this month. While the CDR will initially be applied to financial services, the country will also enforce its requirements on the energy and telecoms sector.

In the UK, we've already seen neobanks like Monzo add energy switching as part of their offerings, and this could motivate similar efforts by Australian fintechs.

Here's what it means: The CDR is a critical component of Australia's move toward open banking - and while likely welcome by fintechs, it will place pressure on the country's big four banks.

The bigger picture: While open banking stands to stimulate competition in Australia, the country's authorities need to ensure that banks are adequately prepared to meet the obligations.

Despite the promise of open banking, we've seen the movement struggle to gain traction in the UK. Open Banking in the UK, and its EU counterpart PSD2, came into effect in January 2018. Yet, by the following year, the impacts of these new rules appeared to be limited: The market share of the UK's big four lenders remained pretty much the same, per Bloomberg.

In part, this was likely driven by a lack of awareness among consumers about the new rules, with only 14% of those aged 18-24 and 39% of those above 55 saying they'd heard of Open Banking as of August 2018. Additionally, continued failures by incumbent banks to meet the various deadlines for implementing the required data sharing likely hampered the progress.

Authorities in Australia would be wise to pay attention to these failures in the UK if they want to ensure that open banking's benefits are accrued in the country - and that might mean taking a slower approach to requiring banks to share customer-permitted data.

Here's an industry opinion, as told to Business Insider Intelligence:

"This is a winning proposition for the consumer. Controlling how your personal financial data is shared and being confident in its security is empowering. The benefits that come with open banking will help consumers become more aware of their finances, as well as improve choice by opening the doors to a range of products, services, and providers. With Australians now expecting efficient and responsive customer service, like they have in other digital experiences, open banking and the new CDR law will have a significant role to play. It's certainly something we should look forward to. This is only the start of the journey." - Andrew McFarlane, global lead for open banking at Accenture

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