“The CDR opens up the gates to a lot of the data that has been locked away by financial institutions for a long time.” - Charlie Carpinteri, IE Technology Principal
The Consumer Data Right (CDR) is legislation introduced by the government that gives consumers greater control over their data. Its purpose is to make it easier for consumers to access better deals, products, and services. For example, it allows consumers to compare and switch their banking service providers, which has been notoriously difficult in the past. The CDR is regulated by the Australian Competition and Consumer Commission (ACCC), which works to create the rules and frameworks, accredit third-parties that can share and access consumer data, and apply regulation across different industries. The legislation is certainly a win for consumers, providing exciting opportunities for innovation first within the banking and fintech industries, to be followed by other industries such as energy and telecommunications. Ultimately the CDR gives consumers greater access to and control over their own data, with the ability to manage who has access, the purpose of that access, and for how long. Empowering consumers will lead to greater competition between service providers and improved customer satisfaction.
You may sometimes hear the terms ‘open banking’ and ‘CDR’ used interchangeably, however they do have slightly different meanings.
As previously discussed, the CDR is being rolled out across three sectors. Finance is the first sector in which the CDR has been introduced by the ACCC. The term ‘open banking’ has been coined (pun intended) when referring to the various applications of CDR legislation in this sector.
The benefits of open banking are yet to be fully realised. As more institutions become accredited and the ecosystem grows, the value it unlocks will increase for both consumers and small businesses.
The purpose of the CDR is to put power back in the hands of the consumer. Banking customers will be able to switch between products and service providers quickly and easily.
You may have heard of application programming interfaces (APIs) before. APIs allow different systems to communicate with each other and share data. The lack of APIs in the financial sector has restricted the level of innovation and sharing of data that improves the consumer experience. Under the CDR, there are a defined set of APIs that banks need to adopt, which will drive product and service innovation that can leverage consumer data across the industry, while also increasing the security and stability of how this data is used.
On top of control and interoperability, there is also the convenience of being able to access the CDR through your banking app or website. The legislation has unlocked the ability for consumers to easily switch between products and institutions. The sharing of data can now occur at the touch of a button, enhancing the speed and efficiency for consumers to compare financial products.
Thanks to the transparency of accurate data, now readily available, consumers are able to access more competitive and personalised products and services based on their habits, personal circumstances, and preferences. They have more choice and are more informed than ever before. This flows both ways, enabling companies and service providers to offer more targeted, personalised services and create better customer experiences.
“If you have data on a customer’s banking, energy, and telecommunications consumption, that’s a massive footprint of our lives: how we live, how we consume energy, and how we communicate with people. There are numerous ways to overlay different data models and probably thousands of use cases that haven’t been invented yet, which is exciting!” - Charlie Carpinteri
Within the open banking space the legislation is going to affect fintech and banks. But in the future there is an opportunity to disrupt a lot of businesses across other industries. For example, there is the potential to use banking data to estimate an individual’s carbon footprint and help them move toward more ethical consumption choices. Thanks to this open and easily accessible data, a range of creative innovations will emerge.
At launch, the CDR was only open to customers of the big four banks and limited to the sharing of specified data sets for deposit and transaction accounts, along with credit and debit cards. A year on, it has been rolled out to non-major authorised deposit-taking institutions (ADIs) and now includes Phase 2 and most recently (as of 1st November 2021 for non-major ADIs) Phase 3 products. That means financial institutions of all shapes and sizes are now required to share customer and product data on everything from savings accounts to investment loans and retirement savings.
It’s expected that this will encourage competition between service providers. That will not only lead to lower fees for consumers, but will also drive more innovative products and service offerings.
“First movers will have a competitive advantage if they don’t wait and act now.” - Charlie Carpinteri
Businesses should consider how they can improve consumer experiences by leveraging the data. An example of a company in the retail industry taking this opportunity for innovation and improved customer experience is retail giant REA Group. With a mission to ‘change the way the world experiences property’, open banking has provided REA with a path to improve their consumers' journey to purchasing property. It has achieved this by helping them understand what is achievable much earlier in their home buying journey.
Through open banking consumers will be empowered with easy access to their own financial information, easily and clearly accessible to help understand the financial implications of buying a home. The consumer is not the only one who benefits. Lenders will gain better insight and understanding of the borrowing power of their individual clients. This is just one example of an innovative organisation using open banking to unlock consumers’ data to improve their experience in a sector parallel to finance and banking.
If your business is in banking or fintech (and has the time and resources), you should consider becoming an accredited data recipient. Being eligible to receive consumer data from the banks can be used to build a competitive advantage in the future. Australian consumers will quickly become more aware of the usefulness of open banking and the convenience of having access to their own data. With rapidly emerging innovation within the industry, some businesses could be left behind.
Getting ahead of the curve and getting accredited early will allow your business and team time to test and learn beyond the current standard industry examples. There is a great opportunity to leverage the data to provide and deliver innovative and transparent open banking solutions to consumers.
Our systematic, product-led approach would help you to assess the landscape and how your organisation could fit within it. Ideating around how consumer data made available under the CDR could benefit your customers and unlock new value streams that could not have existed before. This would drive differentiating and competitive advantages in a competitive market landscape. The biggest winners from the CDR legislation are consumers, so any innovations will need to orient around their needs.
At IE we can help companies leverage this consumer-centric approach into a competitive advantage. We believe open banking could transform customer experience in a range of sectors - not only banking and finance. If you want to better understand the data available and how your organisation could use it to develop new products and services, please contact us.
