Open banking is a global initiative and banks all over the world are partaking in it. Given the benefits of open banking APIs, over 87% of countries have some kind of open banking API available. While every bank regardless of its geographical location is trying its best to become the market leader, that doesn’t mean that every country is taking the same steps to build its open finance landscape. Some countries are just starting with their open banking efforts, while others are way ahead in the game with the widespread use of open banking APIs. Some of the leading countries in the open banking initiatives are the UK, Australia, Europe, Singapore, and others. As 2021 has been marked as the milestone for open banking in Australia, here are the major differences between open banking in Australia and the UK.
Aim of Open Banking
The main goal of open banking in both the UK and Australia is to give birth to healthy competition, boost innovation throughout the country and enhance the workflow and provide consumers with a better user experience. Open banking technologies can help streamline the customer experience by offering better bank verification, customer onboarding, KYC verification and more.
The timing of the open banking landscape is perfect, as credit cards are rapidly falling out of favor. During the Covid-19 pandemic, credit card providers have been cautious while issuing new credit cards to customers, thus making it harder for customers to obtain credit cards. This has led to a significant reduction in the issuing and use of credit cards. Financial experts predict that the use of credit cards will keep on declining even after the pandemic is long over.
Compared to users of age above 35 years, millennials have shown 14% less use of credit cards. The reasons behind the decline of credit cards are seemingly endless, the primary ones are that customers are more financially conscious and they wish to avoid unnecessary debt.
Not just consumers, after Brexit the previously applied European Union caps on credit and debit card interchange no longer apply. After the 400% increase in interchange rates announced by Mastercard is sure to impact businesses and customers across the UK.
The end goal of open banking is the same, the steps taken by the UK and Australia are different. In Australia, the open banking trend came into existence after the review commissioned by the Treasury. The outcome of the review was that ‘open data would be a great way to boost productivity and competition and provide customers with better services.
In the UK, the Open Banking initiative gained traction after the CMA reviewed competition in the banking industry. This was the primary reason why CMA established the Open Banking Implementation Entity (OBIE), an organization that handles the development and enforcement of standards. OBIE is regulated by CMA and funded by the UK’s nine largest banks.
Regulatory Environment: UK vs Australia
Open banking infrastructure in the UK and Australia are heavily regulated. In the UK, the Open Banking landscape is governed by CMA. Any bank, FinTech, or third-party provider who wants to participate in the open banking landscape needs to be authorized by FCA to continue to regulate their activities.
In Australia, the first-ever version of open banking is known as CDR. The CDR was made by the Australian Treasury to provide consumers with greater access and control over their data. The ACCC (Australian Competition and Consumer Commission) regulates CDR is also responsible for providing access to any organization that wishes to build its open banking network.
As of right now, the UK open banking regulation especially focuses on payments and financial services, whereas in Australia, the regulatory bodies are also focusing on non-financial services. This is possible because the CDR has been set up as a data policy initiative, it focuses on data instead of the type of transactions, thus allowing it to cover financial and non-financial services.
Current Situation of Open Banking Landscape
Both the UK and Australia have some sort of open banking infrastructure. The open banking legislation first came into existence in the UK in 2018 and it was launched alongside the EU’s PSD2. PSD2 is a regulation that’s focused on open banking and it aims to harmonize the payment services in the European Economic Area. Currently, only the 9 largest banks and building societies are allowed to share data among themselves using open banking. There are multiple businesses and financial institutions that have gotten involved with the open banking revolution. Currently, there are over 40 open banking apps and products live in the market.
In Australia, July 2020 was a landmark as it marked the first-ever rollout of the first open banking initiatives. The launch is considered a huge step in Australian banking, with the big four banks (these hold 80% of the market share) having to start sharing data with the other institutions.
It’s worth noting that another major similarity between the UK and Australian open banking markets is their appetite for innovation and development and offering open banking technologies to the mainstream markets. In the UK, the OBIE has launched a consultation on VRPs (Variable Recurring Payments).VRPs allow customers to safely connect authorized payments providers to their bank account so they can make payments on the customer’s behalf.
In Australia, the launch of CDR happened alongside the launch of the New Payments Platform (NPP). NPP offers the capability of making real-time payments 24/7. something that customers have embraced with Australia. There was a 130% rise in the real-time payments made in the last year. By combining open banking and NPP, the payment technology has been improved and helped in raising customer trust, this suggests that more customer-centric services can be built.
Despite some initial delays, Australia’s open banking initiatives are being rolled out in separate phases. After a year since its launch in 2020, the CDR entered into its next phase with non-major authorized deposit-taking institutions (ADIs) joining the four big banks in data sharing. There is a clear progression of the Open Banking landscape in Australia, it’s happening slowly and it hasn’t disrupted the financial industry till now. This is opposite to the situation in the UK, as they’re currently leading the global open banking market.