We all heard about the Royal Commission into the ‘Big 4’ banks last year. However, less than 20% of Australians are aware of one of the biggest changes coming out of that royal commission: open banking. This will be a major change to the way people get access to home loans (and credit cards, for that matter), but it isn’t talked about often — and it came into effect in February 2020. We’ve got everything you need to know to help you get up-to-date on this major change, so you can be ready to apply, refinance or do what is needed to get your new home.
To put it simply, open banking just means that customers’ financial information and data is shared between banks and other companies (with the customer’s consent, of course). The result of the Consumer Data Right bill passed in August, the big four banks began sharing this information in February 2020.
This move will bring Australia in line with — and in some aspects, further than — several other countries that already use open banking, like the UK.
Well, if you give consent, information about spending/saving habits will be shared. This essentially means that banks will be able to provide more appropriate and tailored services to customers, using past data on your lifestyle. This may mean tailored credit cards or home loans, or that the bank may be more forgiving in unusual circumstances due to their ability to see that it really is unusual for you. No one is quite sure how much the new changes will affect current lending practices, but don’t expect it to change things up too much.
There will be two ‘phases’ of sharing. All consumer, account and transaction data for credit and debit cards, deposit accounts, and transaction accounts from the big four banks will be shared from February 2020, with smaller banks to follow in February 2021. Mortgage and offset data will follow in phase two in July 2020 for the big four, with smaller banks following in July 2021.
This all follows the introduction of comprehensive credit reporting in July 2019, which required banks to share positive credit events, such as regular payment histories and what types of credit people use.
Not everyone trusts their bank, so many have been asking themselves whether this is a good change. However, the move will have a lot of benefits for the average person, and very few drawbacks. Primarily, customers will find it easier to apply for and secure a loan, because the sharing of information will speed up the application process (possibly even automating it in the future).
Open banking will give home buyers, home owners and investors better access to financial products and services, according to Deloitte open banking and open data lead partner Paul Wiebusch.
“The opportunities for each of those groups are similar,” he said. “All of them can share personal information about their financial position with another organisation to allow them to assess credit risk better or come up with a product offering that better suits their financial arrangement.”
Open banking will also help with refinancing, making switching banks much, much easier. You may even be able to lock in a more competitive deal due to your data, depending on how the different banks approach the open banking process.
The major downside to the open sharing of your financial data is that the banks can identify frivolous/odd/weird data points, and you may have to work a little harder to show that you have good banking habits now.
Despite this, it’s worth remembering that several other countries have, and still do, use open banking techniques to great success.
As we mentioned above, open banking will affect a couple of the major significant financial aspects of buying and owning a home: applying for a loan, and refinancing. Most people will find the process easier, as the information provided means that the banks will be able to give customers better financial advice and outcomes. The changes will not have a massive affect on the amount of people in the housing market however, so these changes are expected to be a bad thing.
What do you think about all of these changes? Do you think they are good or bad — or maybe even something in between? Let us known in the comments below.