CDR across the Ditch: What can New Zealand learn from Australia’s open banking journey?
On Monday 12th December 2022, Open Finance ANZ hosted a webinar on the topic of “CDR across the Ditch: What can New Zealand learn from Australia’s open banking journey?”
The backdrop for this conversation was the confirmation on Thursday 10th November 2022 by New Zealand’s Commerce and Consumer Affairs Minister, Hon Dr David Clark, that the first sector to be designated into New Zealand’s regulated Consumer Data Right will be banking.
Minister Clark said: “The banking sector is a natural starting point for rolling out consumer data rights, as the industry has already made significant progress towards open banking on their own. Banking was also the first sector designated in Australia so we can learn from them.”
New Zealand has already been working on a market-led approach to open banking and has built API standards over the last couple of years through the API Centre. This has started with payments as the use case, rather than data, although there have been “starts and stops” with this approach. Now work will need to align to the regulatory standards that are going to be developed and also the mandated timetable when announced.
It is expected that New Zealand will launch open banking in 2024.
Panel Participants and Themes
The panel was facilitated by Jennifer Harrison, Director at Reputation Edge and Co-Founder of Open Finance ANZ. She was joined by an expert panel , all of whom have lived and breathed open banking and the Consumer Data Right for many years:
- Brenton Charnley — CEO & Founder at Open Finance Advisors
- Jamie K Leach — Domain Lead, Regulated Data at Cuscal
- Tim Poskitt, ANZ Country Manager at Envestnet | Yodlee
The panel delved into three key themes to help the audience understand what has worked well and what could be improved, to inform New Zealand’s journey towards open banking under its regulated Consumer Data Right:
- What is a highlight from the Australian CDR and what do you think was the enabler?
- What is a lowlight and what do you think was the barrier?
- What is a lesson for New Zealand to take away?
Australia’s CDR and open banking journey
Australia went live with open banking on 1 July 2020 and indeed there is much that New Zealand can learn from Australia’s open banking journey!
There was careful optimism shared by the panel about both where we have come from and also the realities of where we are heading with Australia’s CDR.
Australia’s whole-of-economy CDR is clearly ambitious and there are many moving parts, participants and technical, regulatory and privacy considerations.
Banking, energy and telco have already been designated and just last week we saw the fourth sector, non-bank lending confirmed. Further, the Australian Government has recently introduced enabling legislation for action initiation into the House of Representatives.
The wider CDR goes, into more industries, the more powerful it will become.
Highlights and Enablers
Including all banks and broad banking data sets for wide coverage (building the supply side for data)
The first highlight was the broad coverage for consumer bank accounts and data types.
It was noted that mandating all banks to share data through the CDR is a different approach from the UK, which only mandated the CMA9.
With 114 Data Holders sharing data and 99% consumer bank coverage in Australia (reported by Treasury), this is a fantastic starting point and enabler for the open banking ecosystem.
Prescriptive standards make it easy(ier) to share data and comply with the Rules
Standardisation of data sets was also noted as a highlight.
The panel agreed that having a single set of technical standards for the development of the APIs means that it was ‘easier’ for compliance.
Again this was driven through the prescribed CDR Rules.
Iteration of the Rules and introducing tiered accreditation (building the demand side)
There are now multiple pathways to access open banking data under the CDR. This has been a positive for interest by fintechs and others who may be at MVP stage and may not be able to invest large amounts of time and funds to achieve full accreditation.
This has been made possible by the design, and ongoing iteration, of the regulations and CDR Rules via the feedback and consultation process.
Lowlights and Barriers
Not finishing open banking before adding new sectors to CDR
Noting the broad ambition of the CDR to be a good thing, the panel also acknowledged there is work still to be done in open banking to finish what we’ve started even though open energy has now gone live.
Brenton Charnley said: “It’s frustrating that we haven’t finished open banking and gotten to the depth in that.”
Australia is at the end of the beginning, completing the compliance phase, getting on top of data sharing issues and consent process flows, so we can accelerate the adoption phase.
Delays and the earlier high barriers to entry before additional pathways were added
There have been delays in getting to a high level of bank coverage as many banks missed the initial deadlines yet did not receive a penalty.
Initially, there was only one pathway to access open banking data which was to become an unrestricted Accredited Data Recipient. This was (and still is) time consuming and costly, although there is now a tiered access model under CDR Rules v3 which has removed some barriers to entry for data recipients.
Lack of an independent implementation entity
The lack of an independent implementation entity was identified as a key lesson for New Zealand to help accelerate the success of the CDR.
The panel recommended to learn from both the UK and Australia’s experience and stand up an implementation entity to set goals and accelerate implementation.
The panel agreed that there needs to be accountability when data is unavailable, or slow, or wrong.
Tim Poskitt said: “The gap that I see is a single body responsible for implementation with clear goals.”
Overly prescriptive regulations are barriers
The panel recommended that New Zealand look to develop principles based Rules rather than overly prescriptive rules that make it very difficult to comply and puts up high barriers to entry. Whilst it is extremely important to put data security and privacy protections in place, these should be considered outside of the CDR Rules themselves.
Jamie K Leach said: “Don’t be so overly prescriptive that in trying to reduce all potential risk to zero you render all potential reward to zero.”
The panel agreed that there is a careful balance between prescriptive and principles based. But the need to start with a use case and build from there rather than building for all permutations. There are plenty of insights on what use cases are popular from the UK, EU and Australia.
Lessons and Key Takeaways
Open banking is for everyone
Open banking needs to allow everyone to participate for maximum success.
Tim Poskitt said: “From the get-go, have a clear line of sight to allow smaller organisations to use the data. Ultimately, it will drive more innovation, better adoption and increase competition.”
The panel also noted that there is merit in encouraging banks to be data recipients too, although that can come with some challenges around knowing how to use and store the consumer data that comes in.
Jamie K Leach said: “Banks can also use CDR to compete … not just comply.”
Building use cases for data and payments together
There was a lengthy discussion by the panel about the importance of data sharing in an open banking ecosystem and the associated use cases.
However, at the same time, overseas experience is that payments (or payment initiation) enabled through open banking is a great use case that can drive consumer uptake and participation. Payments, or some other kind of action initiation, are often the ‘so what’ of the data sharing regime and the UK saw a significant uptake when open banking payments were made possible.
Jamie K Leach said: “Data sharing feels like it’s only half of most of the use cases that we are hearing from the market. What we are seeing from other parts of the world is … I will share my data in order to receive some other product or service which generally has an instructional component and 95% of the time seems to be payments related.”
A question for New Zealand to resolve will be whether to build both data and payments from the start in the CDR rather than roll them out in sequence as has been set out in Australia.
Independent implementation entity to set goals and help achieve them
The lack of an independent implementation entity was identified as a key lesson for New Zealand to help accelerate the success of the CDR.
The panel recommended to learn from both the UK and Australia’s experience and stand up an implementation entity to set goals and accelerate implementation.
There was also mention of the potential benefits of a pool of money — like a seed fund — that could be applied to help fintechs to develop use cases.
Brenton Charnley said: “The ‘build it and they will come’ approach is risky when you are dealing with regulated data. You need to get the basics right first which is to focus on the problems and use cases consumers want. Good data coverage and high consumer conversion rates will make open banking a success and give data recipients traction on the ‘safe bets’ to place.”
