Can anyone else remember when innovation in telecommunications finally took off? It was in 1999 when telephone numbers became portable. The telecom providers were forced to eliminate that formidable switching barrier. From that point onwards, the phone number was the customer’s, not the provider’s, and customers could take their phone numbers with them when switching to another provider.
The equivalent barrier in banking is the Know Your Customer (KYC) barrier. To eliminate the barrier, customers must be allowed to instruct their bank to share their KYC credentials with another financial provider of choice or the provider must be able to obtain them from a trusted government authority. The new provider can then choose to trust the obtained credentials and customers can open a bank account, hassle-free, document-free and online in minutes.
The Monetary Authority of Singapore (MAS) is leading the charge in the KYC stakes, with its trialling of a digital on-boarding service that allows consumers to open new bank accounts without the need to submit copies of their identity, income and other documents.
This is a huge step towards opening up the marketplace so that it is easier for consumers to switch between financial providers. My question is – when will Australia see the light and catch up with such policy changes?
The MyInfo service, which has been rolled out between four banks by MAS since May 2016, allows the bank’s customers that are registered with MyInfo to apply for a new bank account online. It’s quick, easy to use and eliminates the on-boarding frictions usually experienced by customers in search of a better deal.
Sadly, this is just another example of how Australia is lagging behind in the open data stakes. Especially in terms of KYC protocols, it is made nearly impossible for consumers in Australia to change financial providers. Why? Because there is a data lock-out by the big banks, who are fiercely protective of their customer’s information. Further, seeing as there is no mandate in place for them to share this data with other financial providers when customers want to switch, it is difficult for KYC requirements to be fulfilled.
And the switching inertia of customers between financial providers in Australia isn’t the only issue stifling competition in our marketplace. There is also a lack of appetite to invest, as an industry, into the innovation process and technical infrastructure to open up banking. There is a global race on to enable open data, open application programming interfaces (APIs) and shared KYC in a way that offers customers choice in selecting their most suitable banking solution while being protected as far as security and privacy is concerned.
Under a strong mandate of the Reserve Bank of Australia (RBA), recalcitrant banks will deliver a real-time inter-bank settlement system, known as the New Payments Platform (NPP). The NPP showcases a successful path for how the Australian banking oligopoly can be made to deliver infrastructure investments in the public interest.
In terms of innovation, we are also seeing a growing movement of countries overseas investing in blockchain technology, with innovation firm R3 CEV spearheading the blockchain agenda.
Blockchain technology comprises a digital, distributed ledger that records online transactions through a network of linked computers. The perk of a blockchain system is that data, once recorded, cannot be modified and as a result, transaction security cannot be compromised retrospectively. [1]
Last year, the Commonwealth Bank experimented with a blockchain system with 10 other international banks using the R3 peer-to-peer distributed ledger.[2] The R3 network is a ‘virtual private network’[3] where its members can “trade” with each other. Many have called this the future of the financial services sector and we have seen many banks overseas invest in R&D of blockchain technology to improve their business models. Yet Australia has been late to the party – again.
We are seeing the big banks in Australia starting to inject funds into these new, emerging technologies as well as creating agile teams focusing solely on the ‘survival archetype’[4] of their firms. Yet if Singapore is anything to go by, we aren’t moving fast enough. Not that size matters, but Singapore is smaller than the size of Tasmania, yet this hasn’t prevented it from progressing its forward-thinking, open data agenda.
Open banking is a long overdue project. If Australia doesn’t get a move on, then we will lose the opportunity to establish our country as a leading financial services and fintech hub in the Asia-Pacific region. The Australian financial services sector is in dire need of a shake-up. This is old news. Yet the longer we wait to implement mandates that allow for data-sharing platforms, the greater the risk of our market stagnating as a result.
Further commentary of mine on this issue has been published by finder.com.au.
[1] http://theconversation.com/can-blockchain-technology-help-poor-people-around-the-world-76059
[4] http://www.bankingday.com/nl06_news_selected.php?act=2&stream=20-100&selkey=22360&hlc=2&hlw=