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The head of the Australian Banking Association (ABA) has said its members are seeing little return on their investment after spending heavily on open banking implementation.
Anna Bligh, CEO of the ABA, said that despite the best efforts of government, regulators and industry, Australia’s Consumer Data Right (CDR) framework has “not realised its potential”.
“Australians have enthusiastically embraced digital innovations in banking such as mobile wallets and PayID,” she said. “However, uptake of the CDR has been comparatively low.”
Bligh made the remarks last week in response to a strategic review of the rollout of the CDR, produced by Accenture on ABA’s behalf.
The review found that, at the end of 2023, only 0.31 percent of consumer banking customers had an active CDR data sharing agreement in place.
Moreover, by the end of the year, more than 50 percent of existing agreements had been discontinued or allowed to lapse.
“It’s time to go back to the drawing board,” said Bligh. “The current CDR regime isn’t delivering for customers or enhancing competition, and a new pathway forward is needed.”
High investment, low adoption
Since 2018, Australia’s banks have collectively spent around A$1.5bn ($1.1bn) on CDR implementation.
About 75 percent of this spend has come from the big four banks — Westpac, Commonwealth, ANZ and NAB — and the remainder has come from mid-tier banks.
The CDR framework was intended to “promote competition” and “encourage innovation” within the banking sector.
This was expected to benefit mid-tier banks in particular by ensuring customers can use their data to access better products and services from a wider range of providers.
However, the ABA has said that, contrary to its intent, the CDR is “negatively impacting” competition, as mid-tier and regional banks incur disproportionately high compliance costs compared with major banks.
“High compliance costs are forcing difficult investment trade-offs — particularly for smaller banks — leading to vital technology and customer projects being deprioritised,” said the ABA.
One mid-tier bank said that CDR implementation took up 90 percent of its digital capacity, people and funding, and led to delayed investment in the bank’s mobile app and core banking systems.
Another bank said it is “having to make conscious trade-offs” between investing in CDR and investing in other key areas of concern, such as fraud prevention and anti-money laundering (AML) controls.
Build it and they will come?
Given the CDR framework came into effect in February 2020, the ABA said that uptake of open banking is particularly low when compared with other financial service innovations.
“Other digital innovations in banking, such as mobile wallets and PayID, have had materially higher customer uptake three to four years post launching,” said the association.
PayID is an addressing system that allows bank account holders to use a mobile number, email address or Australian Business Number (ABN) as an identifier when using the New Payments Platform (NPP), Australia’s instant payment system.
In 2021, three years after the launch of the NPP, there were 10m registered PayIDs, and by 2023, this had grown to 18.6m.
Similarly, after the launch of Apple Pay in Australia in 2015, the number of cards registered to mobile wallets had grown to 5m in 2019 and 15.5m by 2022.
In contrast, the review found that the CDR has not resulted in an “impactful” number of data sharing agreements, and is already showing “early signs of decelerating growth”.
Rehan D'Almeida, CEO of FinTech Australia, told Vixio that the industry cannot rely on a “build it and they will come” mentality going forward.
“Australia is a financially technologically savvy country — we have one of the highest rates of phone-based payments in the world,” he said.
“But we’ve seen other innovations in the past that have fallen flat without a marketing push to support them.
“Any piece of fintech legislation that we want to see broadly adopted will need marketing support from our banks and government. The fintech industry in turn will play its part to promote that too.”
Which use cases are leading?
The top five use cases for CDR agreements in Australia account for around 70 percent of all CDR agreements.
In order of popularity, these are:
1. Personal finance management (PFM): budgeting, micro-investing, loyalty/rewards.
2. Business finance management (BFM): ledger management, automated reconciliation.
3. Connectivity services: CDR build outsourcing, white-labelling.
4. Digital lending: peer-to-peer lending, micro-loans.
5. Product comparison: interest monitoring, credit card comparison.
Similarly, around 5 percent of accredited data receivers (ADRs) make up 75 percent of all CDR data sharing agreements.
These ADRs include Frolio, a provider of PFM and CDR connectivity services; WeMoney, a provider of PFM services; and Beforepay, a provider of PFM and digital lending services.
“Despite attempts by ADRs to innovate and grow the market, they are struggling to uncover compelling use cases and gain traction with consumers,” the report notes.
Australia lags behind other jurisdictions
The review compared open data sharing and open banking frameworks across jurisdictions, and found that consumer adoption is highest in India, Singapore and Brazil.
In India and Brazil, adoption of open data sharing has shadowed the adoption of the two countries’ instant payment systems: UPI and Pix respectively.
In India in particular, the combination of a relatively high unbanked population and a widely used digital ID system, known as Aadhaar, has fuelled the use of open data sharing.
The review ranked the UK and EU as “low” in terms of adoption, with “low” defined as less than 15 percent of consumer banking customers using API-based data sharing facilities.
