What is open banking?

Open banking is a financial term referring to technological developments which give the consumer more control over which banks, financial institutions and third parties can access their personal banking data.

This financial data can include (but is not limited to) your spending and transaction history, repayment and lending obligations, information about your banking products (like your interest rates and fees) and more.¹

The driving motive behind open banking and consumer data sharing is making it easier for you to monitor your finances, as well as switch and compare products and services with ease. The idea is that open banking will encourage more competition among both traditional and new financial institutions, and then lead to more competitive products (e.g. lower fees and rates).

What is the Consumer Data Right (CDR)?

The Australian Government introduced the Consumer Data Right (CDR) in 2017, giving consumers greater access to and control over their data.² CDR was first applied to the banking sector in the form of open banking, which allowed you to share your information with a trusted third party or service provider of your choosing, like your bank.

So, open banking is effectively just what we call the application of the CDR to the banking sector. The CDR will expand to the energy and telecommunications sectors in coming years, so we may soon see ‘open energy’ and ‘open telecommunications’.

Open banking works on an opt-in basis, meaning banking customers must give explicit permission for their banking details and account data to be shared with accredited third-party data recipients. Financial institutions use a type of software called an Application Programming Interface (APIs) to share information securely.

While specific instructions can vary between providers, you’ll typically need to follow the steps outlined through a bank’s website or app to allow your data to be shared. These steps usually consist of:

• Giving consent. You need to permit a third party to access your information.
• Verifying your identity. You’ll need to complete an identity check, usually through your provider’s website or app.
• Confirming the data you want to share. It’s up to you to decide the types and amount of data you want to share (e.g. your transaction data) and for how long you want it to remain visible to your chosen parties.
• Sharing data. Once you’ve given consent and confirmed the data you want to share, your provider will transfer it electronically through the API.

Once these steps are complete, you can use the third party’s service and your information should be ready to access in real-time.

An example of open banking in action

George has a home loan with one bank but is curious to know if he could save money by switching to a different provider.

The new provider can give George a quote but requires him to enter a lot of information about his current loan, all of which is with his existing bank.

George doesn’t know the information off the top of his head and knows it would take a significant amount of time to obtain and collate it all. By opting for open banking, he can easily share the relevant data with the new provider.

In the long run, George saves time on the application and finds that he could be saving money if he switched lenders.

Open banking gives you more control over which parties have access to your banking data. It also makes it easier to compare products and services by having your information ready and available to be shared whenever you need it.

Open banking allows you to share:

• Personal information, such as your name, phone number and address
• Bank account information, such as your account balances and transaction history
• Information relating to your existing financial products or services, such as fees and interest rates.

Sending this information in real-time can make it easier to:

• Compare financial services or products with a different provider
• Open a new savings account or term deposit
• Take out a debit card with a new bank or provider
• Apply for a credit card or personal/home loan
• Use budgeting tools and budgeting apps

Despite what its name may suggest, open banking isn’t a data free-for-all. CDR and open banking employ numerous safeguards which ensure your data is kept safe and secure. The most important and foundational of these safeguards is that it’s completely up to you whether you decide to share your data, and which pieces of it you share. This means you can choose the information you wish to share, who you want to share it with and the specific timeframe it can be shared within.

Open banking falls under the CDR framework, which the Australian Government oversees. Providers must go through a strict review and accreditation process before becoming accredited third-party data recipients, and only verified providers can participate.³ Accredited businesses may display the CDR logo on their website and will also be listed as accredited data recipients on CDR’s online register.

The Australian Competition and Consumer Commission (ACCC) is Australia’s CDR regulator and oversees the implementation of the CDR regulations, and accredits data recipients and monitors compliance. All banking data is transferred through secure connections governed by the ACCC, and you’ll usually need to complete two-factor verification with your bank as an added layer of security.

Australia’s ‘Big Four’ banks (ANZ, Commonwealth Bank, Westpac and NAB) were all required to offer open banking by July 2020, while smaller institutions such as mutual banks and credit unions had until February 2022 to comply. As of April 2023, there are 107 active entities in the CDR registry listed as either data holders or data recipients.

Open banking isn’t unique to Australia and has already been introduced in the United Kingdom and European Union.⁵ However, it’s not an international system; if you have an Australian account, you’ll only be able to share your data with accredited third parties within the country.

No, open banking doesn’t cost the consumer any money, at any stage. There are no fees or charges for transferring your banking data, and an accredited third-party data recipient can’t charge you to receive your information from an accredited data holder.

Open banking could actually save you money, by making it easier for you to compare your options within the market and find a cheaper or better-value product for your needs.

The ACCC has outlined several data standards, rights and guarantees with regard to open banking, which are designed to protect consumers and must be adhered to by accredited providers. A provider must make the following clear on their app or website:

• The kind of information they’re using and how a third party would use it
• Which parties will have access to your information
• The length of time for which the information will be available
• How you can manage or withdraw the consent you give for the sharing of your customer data.

You must also be able to easily manage your consent across all data points, providers and recipients, as well as withdraw from open banking entirely at any time.⁴

If you have a joint account, both account holders will need to provide consent in order to share information relating to the account. If you want to share data or make requests on behalf of the other account holder, they’ll need to provide consent for you to do this on their behalf.

You can stop sharing your data via open banking at any time. If you do change your mind and withdraw your consent, the provider receiving your data must stop using it, delete it (unless it is already on file with them as part of a credit application) and deidentify any information they had previously obtained.

You’ll generally be able to stop sharing data through the third party’s service or the original provider’s website or app. As the process for doing so can vary between providers, it’s best to verify the appropriate steps with them.

It’s also worth restating that third parties can only store your data within the timeframe you specify. So, you may want to consider putting an expiry date on your consent, saving you the effort of having to manually withdraw your consent in future.

If you think your data has been compromised through open banking or that your data privacy has been breached, your first point of contact should be your provider. If they don’t respond after a formal complaint or you’re not happy with their response, other help is available.

For example, the Australian Financial Complaints Authority (AFCA) can help you with free and independent dispute resolution, and there’s also a dedicated CDR complaint form that you can submit online.