7 questions on Open Banking

So, in a word, it’s choice. With open banking, customers are now going to be able to move freely from provider to provider and get better financial services products.

It’s the recognition that the data belongs to the customer. It’s your data. What you do with it is up to you. And you should be able to enter into a value exchange with financial service providers to get a product that’s going to better suit your needs.

And what it means for the Australian financial services landscape is that we’ll see a competition refresh with the big players. And competition drives better consumer outcomes.

The implementation of open banking in Australia is mandated and referred to as the Consumer Data Right (CDR). The unique thing about this legislation is it puts the consumer at the centre. So, it’s your data and you get to dictate how it’s going to be shared.

A challenge that will face financial service providers and participants in Australia is the current accreditation process under the CDR. It is rigorous and it’s really forcing a lot of companies to look at a lot of the stuff that’s fundamental to their business, their assurance and risk strategies, their info security and architecture, and their strategic plan.

Past the accreditation challenge, the main issue will be ongoing compliance. You need to demonstrate that you are managing your customers’ concerns appropriately while also maintaining the data to the high standards dictated by the CDR.

After receiving the data, the question becomes ‘what do you do now? Once you receive account transaction data, there’s still a lot of work to be done. How do you truly identify salary? And adjust for aspects like salary sacrifice? How do you find rental income, or work out where haircuts may have been applied to your expenses? What’s discretionary and non-discretionary? That raw data in its own right is very powerful, but it’s not the end game. This is where products like XAI have helped Tic:Toc Home Loans, for example, really achieve the efficiency and automation that we see today.

In Australia, we’re now at a point where customers can get access to their data across a range of account types, transactions, credit cards, home loans, and personal loans. But not all data providers are actually provided that information now. Very soon they will be. The major banks and major ADIs in Australia will now be mandated to provide that information. However, there is the data holder aspect and then there is the data recipient aspect. Becoming a data recipient is a lengthy process.

Until more data recipients become active in the ecosystem, customers aren’t going to be able to benefit from open banking. So what we need to see is a real concerted effort over the next 12 to 18 months to get data recipients and holders to really embrace CDR because it will give consumers a better deal.

The fundamental aspect is now it is your consumer’s data first and foremost. And that may sound like a simple distinction, but no longer is data coming into your organisation and you can put that in your warehouse and do what you want with it. The data coming in through CDR belongs to the consumer and when that comes into your environment, you need to have a level of control and rigour around what you do with it. So, for example, if you want to do a simple analysis of the number of expenses in a period of time, that aggregated value is still consumer data. And what you do with it is still mandated. It is controlled by the legislation.

“The data coming in through CDR belongs to the consumer and when that comes into your environment, you need to have a level of control and rigour around what you do with it.”

The next thing companies will quickly realise is you need to ask your team once you get that data in, what to do with the data. A lender might realise that we do not have any functionality internally or any smarts to identify and categorise data or to identify income. It’s all well and good to get the data in, which is part of the battle, but how do you extract meaning and how do you use any downstream systems? That’s where products in the industry have been built specifically to extract meaning from raw data to help drive automated decisions quicker.

In terms of how CDR will change the way the industry thinks about data, I’d really love to say the answer is goodbye paper. We will say goodbye to a lot of paper, but I think paper is still here to stay. But it’s going to really revolutionize the ability for lenders, for personal financial management providers, all of these sorts of companies dealing with financial data today. It’s going to make it easier for them to offer their products and offer better products to their customers.

It’s also going to be challenging for a lot of the incumbent providers of these products because everyone’s invested a lot of time and money and smarts in their processes. They’re proud of it. They identify these challenges. CDR is now coming through and challenging that again. So, you know, how are they going to react? How are they going to respond?

Following on from how incumbents should tackle the CDR shakeup, I think we’ll see more of a buy vs. build vs. partner approach. Once you get your data and you don’t necessarily want to build the smarts to try and extract all the insights from the data you might need, or build the integration that goes off to the data holders — because that is complex.

So it’s going to be challenging. And who can you partner with? There are people in the industry and organisations who can provide these services. So once that data comes through, you can extract all the meaning and insight and the results can be really easily surfaced through an API integration with your existing workflow, and through a user interface that is designed for lenders and operational staff to use.

For smaller lenders, the argument in the industry has been so far that the current accreditation requirements are actually against the philosophy of CDR, because it’s blocking those small players who can deliver better products. To be a recipient, you need to meet what’s called an ‘unrestricted’ level of accreditation. This is extremely onerous in terms of the info security requirements, your technical architecture, your assurance and risk profiles, and your ability to maintain governance over consent and data going forward. So It’s blocking them from being able to participate adequately.

The ACCC, which is the regulator at the moment, has announced recently that they’re seeking consultation on alternative levels of accreditation. And in my opinion, this is great news for the industry because it’s going to allow more people and more financial services providers to participate in CDR at different levels of accreditation. And what that will mean is they get different amounts of data and they can process data for shorter periods of time. But more players in the ecosystem will make better deals for consumers.

Australia is slowly preparing to roll out the open banking framework to other industries. So soon we’ll have open energy, telecommunications, and eventually perhaps open superannuation. I think over time these will eventuate and the government, from a legislative point of view, can start thinking about these emerging changes now.

We’re seeing open banking roll out in places like the UK. The key difference with Australia is you’ve got the ability to read and write within the UK system. What that means is you can get data, but you can also change it. So imagine you’re a small financial services provider, and you want to build your own online banking app as you’re selling your lending product. You can do that now because with this you can get the data in and you can execute a payment through the app that you built against the data holder downstream somewhere. That’s really powerful. And that’s a fundamental shift. Overall, in Australia, we’re still looking at a read-only ecosystem. It will take a lot to adapt.

I think we need to really move towards the next part, which is to make Australia a ‘write ecosystem’. That is, permission to both “read” and “write” certain data should be granted. Allowing us to execute that mix is going to create a whole lot of additional value. You’ve got to think about the frequency of data. Today, you apply for a financial service, say once a year, you might make a payment maybe once a week. So having a ‘write ecosystem’ is only going to rapidly increase the consumer’s engagement with the ecosystem and the trust and their willingness to use CDR data when they’re applying for a financial service product.

In terms of other opportunities, Senator Joan Kun recently spoke around the fact that Australian CDR, the legislation, the way it’s structured, is so unique by putting a consumer in the middle. Other jurisdictions such as the US and Canada are actually looking at this legislation as a model for their own for open banking going forward.

So what this means is we could potentially be exporting legislative frameworks to other jurisdictions. From an Australian competitive perspective, what this could mean is Australian companies are now uniquely placed to move into those jurisdictions, having already been accredited, allowing them to take advantage of additional competitive opportunities.

You need to ask how the technology is arriving at the decision. AI is fundamentally any way to automate something, and that something can be a decision. AI is a very broad term for anything that majorly automates a process that a human would normally need to do manually. And they can often involve complicated transformations of data, which can be confusing in the way the AI arrives at a decision or a recommendation. The fear of the black box if you will.

When a financial service providers transitions to AI techniques they need to be able to take their customers, take their internal staff, stakeholders, and their credit and risk teams on the journey. And the really important way to do that is to always put the human in the loop. The human has to be there. And controlling that decision, I think, is a tool. It is not the decision, in my opinion, but it should help that human in the loop to arrive at a decision really quick.

“…as they transition, they need to be able to take their customers, take their internal staff, stakeholders, and their credit and risk teams on the journey. And the really important way to do that is to always put the human in the loop.”

There will be a whole lot of processes that need to be put into place to maintain your ongoing trust in any AI solution in terms of accuracy of decisions. You’ll need independent audits by humans, and a human in the loop, where required, to make sure that the decisions are actually becoming clear and accurate.

These can be difficult challenges for somebody who’s built an amazing machine learning algorithm and has managed to productionise it and expose it through an API. Some would think the job’s done. But they then need to take those traditional stakeholders on a journey to explain how it runs and how it comes to the decision. And to explain why it’s going to be right for the business, and how it’s going to be robust to threats and to bias and to controls which could change the outcome of those decisions over time. And I think the key aspect is that human always has to be in the loop. XAI validate is a product which does that. It will automate based on a highly curated set of labels that we learn over time from our community. It will automate insights around your credit policy and find income, salary and expenses, and non-discretionary amounts. It will automate that and serve that up to you through an intuitive user interface. And the decision is then always resting in the clients hands. These are like recommendations or insights, but the decision ultimately will rest with that user.

The rollout of Open Banking mandates are ongoing, with full changes expected to be implemented by early 2022. In the meantime, you can learn more about XAI Validate here: https://tictoc.ai/