Source: Australian Financial Review Aug 2 Treasurer Scott Morrison has told leaders of the fintech industry he’s counting on them “not to stuff up” the implementation of open banking because he wants the government’s new consumer data right to be a driver of competition and productivity gains across the economy.
With the major banks lifting technology investment to fend off disruptive threats, Mr Morrison said he’s relying on start-ups to use his open banking and comprehensive credit reporting policies to increase pressure on the incumbents.
“You are all in the business of financial technology disruption. I am in the business of policy disruption,” Mr Morrison said at Ashurst on Wednesday night.
“I am frankly counting on you not to stuff this up. You need to make this work … In today’s global economy, the ability for economies to become more productive is not being done the old way: the biggest transformer of productivity [will be] innovation.”
Even though National Australia Bank CEO Andrew Thorburn has lifted spending to transform NAB in order to fend off fintech start-ups and Westpac Banking Corp CEO Brian Hartzer recently described equity stakes in various start-ups as a “strategic asset” for the bank, Mr Morrison said the new consumer data right will be a “game changer for competition” by giving more power to consumers.
Banking will be the first sector to apply to the right, in July next year; the law will require banks to give customers their account data, should they request it, or send it to an accredited third party. It will then be rolled out to the energy, utilities and telecommunications sectors.
“The consumer data right effectively gives back to consumers a power that they have never had before – control and ownership over data, which in today’s economy, is one of the most valuable things there is,” Mr Morrison said
“It takes it away from highly institutionalised, regulated, protected organisations that can use it simply to confuse or distort or capture their own interests to the exclusion of others. This breaks that all up. It is a big disrupter.”
The comments were made in a speech at a fintech industry awards ceremony on Wednesday night. Mr Morrison will also address open banking at a speech to the Australian British Chamber of Commerce on Friday.
The consumer data right was called for by the Productivity Commission’s 2017 report on data availability and use. Commissioner Stephen King told The Australian Financial Review Innovation Summit earlier this week that at present, “consumers can be locked in [to their bank] simply because their current provider knows more about them than a competitor”.
Competition about customer power
Mr Morrison said on Wednesday night he doesn’t consider competition is driven by the number of companies competing in a market. Rather, “it is about how strong the customer is. If the customer has access to all the options and information and has strength in the marketplace, and can assert themselves in the marketplace, that is a strong market. It is delivering what markets are supposed to do – which is to deliver for the customer.”
King & Wood Mallesons partner Scott Farrell, the author of the open banking blueprint, told the Innovation Summit that data rights create “an economic outcome by having a customer-driven push to get [companies] to interact, and use their data better – otherwise they can take their data to someone who will.”
Yet the Summit also explored emerging risks for the new regime – including whether consumers will actually decide to use data they generate and whether IT systems are sophisticated enough to make sense of it.
“You can have as much data as you like but if you don’t have the processes and the IT systems it’s a non discussion,” said the former chief scientist of Telstra, Professor Hugh Bradlow.
Non-executive director Belinda Gibson also pointed out that because “people are notoriously sticky with thier banks … the big piece of this puzzle is convincing people to give up the data they have, and who is going to do that and how.”
And Dr King said as the broader consumer data right spreads, a clear distinction between customer data and “value-added data” must be maintained to ensure that companies continue to invest in systems to collect and protect data.
During his speech on Wednesday night, Mr Morrison also flagged extending the regulatory “sandbox” which has been set up by the Australian Securities and Investments Commission, to allow more start-ups to use it. “There are very strong arguments about it going even further than what it is now,” he said.
He also reassured fintechs he’s confident the comprehensive credit reporting reforms, which have run into hurdles in the Senate, would pass. “At this point, we are not far away from that”, he said.
The Treasurer also said he hoped to see more start-up banks, after the federal budget last year introduced a new licensing regime. Volt Bank received a restricted licence in May, Judo Capital said this week it was expecting one by December while Cuscal-backed 86 400 and Xinja are awaiting their licences.
Van Lee, co-founder of Xinja, told the Innovation Summit that open banking is making the start-up rethink customer relationships.
“Is the role of a bank simply to store your money, or is it now open to us to do more interesting things, like be a mirror to people for where they are spending, what their habits are, and are they getting the most value possible?” she said.
Mr Morrison said fintech start-ups’ willingness to focus so intently on customers should be a lesson for the big bank CEOs. “Fintech is the most customer-focused part of the economy that I have seen,” he said.
Given the pressures of the royal commission, he said major bank CEOs “are very capable people, and are trying to lead very significant change in that sector. But it will all fail unless they can do what [fintechs] are doing – which is focusing on what does the customer want, and how can I get it to them at the lowest possible price in the most convenient way.”
The speech was delivered at the 3rd Annual Australian Fintech Awards, hosted by law firm Ashurst. Major winners of the awards were lending platform Trade Ledger, which won fintech start-up of the year; and Katherine McConnell, the founder of clean energy funder Brighte, who won fintech leader of the year.