At the 2022 All-Actuaries Summit, Sen Nagharajan, Abhijeet Agarwal and Anthony Asher spoke on the Consumer Data Right, its opportunities and its implications. Hugh Miller provides a summary of the session’s content.
The Consumer Data Right (CDR) is based on the principal that we have a ‘right’ to see and use the data held about us by organisations. In this case the CDR is the right for, given our permission, another organisation to access that data to help them deliver us a product or service. It’s currently in the Australian market for the banking sector, and is sometimes referred to as ‘open banking’.
Some of the big potential benefits of open banking are clear. A conventional mortgage application process is long – application forms can be more than 10 pages long, plus significant collation of supporting documents and back-and-forth with the provider or broker. However, if you give your prospective provider permission to see your banking data directly, they can assess your financial position, possibly in a more accurate way. This enables faster and better loan assessments.
The CDR should also provide assistance for smaller finance outfits who do not benefit from a large stock of financial data like the big banks. Potential applications go beyond loan applications and extend to soft credit (e.g. being accepted for a mobile phone plan), loyalty programs, robo-advice, compliance (e.g. checking key details in a mortgage application are correct) and insurance underwriting.
The speakers point to the significant amount of work required to set up the CDR in banking. In Australia, the CDR was developed off the back of a significant 2017 review. Major banks have been providing data since 2019, and now close to 100 participants are accredited to receive data under the CDR framework. There was a long development process, managed by the Commonwealth Treasury.
Other agencies (like the ACCC, CSIRO and the Office of the Australian Information Commission) have contributed to parts of the design and operation. Organisations sharing data need to develop Application Programming Interfaces (APIs) to give digital access and organisations requesting data need formal accreditation to ensure they can access, manage, store and delete data properly. While some processes will be streamlined in the future, much of the regulation ensures that data is shared safely and effectively.
Sen drew parallels to the UK market, where similar functionality has been operating for five years. After a slow start, recent growth has been strong. One notable feature is heavy use of open banking by apps – financial management apps, payment apps and loan assistance are services using open banking extensively. People surveyed have generally agreed that it helps their financial management.
In discussing the CDR:
- The speakers acknowledged the slowness of take-up in Australia. Ultimately to be a popular service open banking needs to be convenient, create value, and ensure trust. While more could be done on the ‘value’ to consumer aspect, the UK experience suggests that future growth could be substantial as companies recognise the potential around open banking.
- Anthony also pointed to the role of ‘good regulation’ such as the CDR in enabling effective competitive markets. The technology should make it easier to compare as well as increasing transparency. In some ways this fights against the ‘confusopoly’ where competition is weakened when products are less standardised and comparisons are hard.
- All the speakers were positive about the likely impact of CDR. Some audience questions explored the risks, such as people without a good banking transaction history being orphaned from financial services, or that people might feel coerced into providing data (if the alternative is a higher-cost product). The speakers pointed to the introduction of credit scores in the 60s and 70s, which in many cases improved access to credit, since it did not rely on your relationship to a bank manager. They also pointed to standardised banking products in India, which has led to significant reductions in people without access to banking.
Finally, banking is not the final destination for the CDR. Energy and telecommunications are next – again, making use of detailed usage and transaction information will make it easier to compare alternatives and encourage competition in these spaces. And broader finance, such as general insurance and superannuation is likely to follow. So this is likely a topic that actuaries will be engaging with much more over time.
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