In mid November, 500 of the country’s leading credit risk profressionals descended on the streets of sunny Brisbane to explore the future of Australia’s credit industry at the ARCA National Conference. From neon cocktail parties and resounding plenary sessions from the likes of Moneyplace CEO Stuart Stoyan and FDTA’s Gavin Littlejohn, to legal, technical and strategic discussions and (endless) networking, we spent the week confirming a lot of what we at Experian had already suspected. We’ve got a way to go in terms of managing the transition to open data – something that needs to be an industry-wide priority to result in benefits for all Australians.
As we approach the July 2019 Open Banking deadline, the word about town is that we need to ensure that our consumer education, preparative legislation and financial literacy are up to scratch. ARCA National Conference delegates were in agreement that without this solid foundation, potential pitfalls on the road to a data sharing ecosystem will be rife.
1. A desperate need for consumer education
The Open Banking era is set to bring about benefits for parties on all ends of our credit system – from streamlining loan applications to improving financial hardship. Consumers will have the power to decide how their personal information is handled, and access innovative new platforms that improve user experiences. Open Banking could even help them save money on weekly shops, as retailers analyse transactional data and create personalised offers as a result.
But “just because Open Banking is being done in the name of consumers,” says ARCA executive chair Mike Laing, “you can’t assume that consumers will understand that it’s going to benefit them.”
The Australian Competition and Consumer Comission (ACCC) commented they will kick off their education programme just three months before Open Banking goes live. They also confirmed there would not be any industry funding for consumer education. We believe this is misguided.
We are asking consumers to give organisations access to some of their most valuable data, so we need to demonstrate tangible examples of how it will benefit them in order to build trust in the system. Approaching the July launch with so little time to onboard consumers and empower understanding is a risky business.
As leaders, ironically, in the business of risk, we need to be pushing government and fellow industry bodies to join forces. Consumer awareness campaigns are the answer, like the CreditSmart program launched ahead of comprehensive credit reporting, and I believe these should be implemented soon – not a few months before the start date.
2. Improving financial literacy as credit options complexify
In a similar vein, financial literacy needs to be improved across Australia. Consumers can access credit in more ways than ever before, with a 400 per cent leap in the use of ‘Buy now, pay later’ offerings in recent years. With more opportunities on the table, there is a risk of consumers finding themselves in increasing debt, unaware of risks involved and uninformed of the regulation of such new financial products.
The Australian Securities and Investments Comission (ASIC) indicated that while their current attentions are on ‘close and continuous monitoring’ for data breaches, it is also promoting responsible lending and addressing mis-selling of products while simultaneously working with Treasury on a recommended consumer intervention power to protect those who are being disadvantaged due to undereducation and ignorance in the credit sphere.
To drive the point home, ASIC also shared some significant stats on financial literacy with the room:
- More than 1 in 6 Aussies are struggling with credit card debt
- $621m could have been saved in 2016/7 if consumers had used lower interest rate credit cards
- In June 2017 Australian credit card debt reached $45bn
3. Walk before you run: Learnings from other markets
It was refreshing to hear Experian’s recommendations echoed in the advice shared by the UK’s Open Banking Implementation Entity convenor Gavin Littlejohn – we cannot rush into Open Banking.
Instead, we need to take the UK’s learnings on board and proceed with caution. Littejohn laid this out in 7 digestable principles of Open Banking, or consecutive steps to implementation, namely:
- Consumer right
- Consumer consent
- Liability model
- Legal and regulatory framework
- Technical specification
- Governance and funding
- Testing and implementation
Australia is currently sitting on the ‘legal and regulatory framework’ point, with the high level framework set to be released by Christmas this year. But we still haven’t fully addressed the country’s ‘liability model’, and concerns are rife that we’ve jumped forward to embarking on the ‘technical specifications’ before we have thought through steps 3 and 4. What’s the rush? We need to take on board the advice from our UK peers, whose disjointed journey has shown that a more considered and coordinated approach to implementation is essential.
Again it must be reiterated that consumer education is imperative. Laing says that “recent research about UK consumers suggests over 9 out of 10 hadn’t even heard about Open Banking – and they’re much further along the path than we are.”
Immediate success is a fantasy
Overseas experiences show that an open data sharing regime takes months, if not years, to reach its full potential after implementation. The UK is about to enter its third improved iteration of the system, and predictions at the ARCA National Conference for Australia’s own implementation were sitting at around 2 years. We can mitigate a lengthy journey as much as possible by learning from global counterparts and preparing our consumers and industry for the changes ahead.
Currently, July 2019 remains the intended Open Banking deadline. But the suggested consensus at the ARCA National Conference was that we need to reassess in April 2019 if this is feasible. We have the opportunity to create a world-class regime, and certainly don’t want to enter it blindfolded or over-zealously. I strongly believe working together, to a realistic timeframe, and educating consumers ahead of implementation is the way forward.
By Poli Konstantinidis, Executive General Manager, Credit Services & Decision Analytics A&NZ at Experian