Consumers don’t know about open banking, Frollo report finds

Open banking provider Frollo has published its third annual State of Open Banking report, revealing that while open banking is becoming more prevalent and being used in more areas of financial services, consumer awareness still remains low.

According to the report, while the number of participants and accredited data recipients (ADRs) in the open banking regime has increased over the past year (with around 114 banks sharing data for more than 30 different financial products), consumer knowledge and trust have not dramatically increased.

For example, the report flagged that of the 1,066 Australians surveyed about open banking, the majority (57 per cent) believed it would be useful.

Indeed, 68 per cent stated it would be helpful in bank switching, with around 60 per cent saying it would be useful for each of the following: pre-filling application forms, providing a full financial overview, quick balance checks, and streamlining mortgage applications.

However, trust in the system was still low.

When asked whom they would trust to share financial information with by linking their accounts to open banking, just 55 per cent said they would trust banks and 34 per cent said they would trust brokers/financial advisers.

Moreover, only 27 per cent said they would trust big technology companies and 23 per cent would trust fintechs.

When asked what was important when sharing their financial information, the largest considerations were the following:

• Privacy (91 per cent)
• Security (88 per cent)
• Control (88 per cent)
• Transparency (88 per cent)

Given this, the chief executive of Frollo, Tony Thrassis, outlined that with recent high-profile breaches at Optus and Medibank in mind, consumers must be made aware of this secure, government-regulated alternative to sharing bank credentials with third parties. 

He therefore called on the government to start educating consumers about open banking, stating: “Open banking promises to put consumers in control of their data by providing them with a secure, government-regulated way to use it. All the ingredients to deliver on this promise are available, except one: Consumers don’t know about open banking. And after years of being told not to share their financial information, they’re understandably cautious.

“With the initial roll-out complete, businesses launching use cases and consumers showing real interest, now is the time for the government to start educating consumers about the secure, government-regulated alternative to sharing banking passwords. 

“If recent high-profile security breaches have told us anything, it’s the importance of data security and privacy.”

Data gaps still plaguing mortgages

The report also found that data quality is still an issue.

For the report, Frollo analysed the account data from the top 19 data holders to understand what kind of data was being shared about home loans.

It found that only basic properties were supplied by the data holders, despite holders being able to share additional optional data such as loan origination date, loan amount, minimum monthly repayments and current interest rates.

Moreover, it found that there was no consistency in the data provided for the following:

• Interest rates (74 per cent) 
• Loan end date (84 per cent)
• Minimum amount (79 per cent)
• Next instalment date (84 per cent)

Information about maximum redraw amounts also wasn’t reliably provided by all banks.

The report concluded: “Although some basic use cases are possible with the data provided, it’s still quite limited from a home loan perspective. The information that could make open banking genuinely disruptive in this space was missing.”

Indeed, Simon Bednar, the CEO of aggregation group Finsure (the first mortgage broker group to launch with open banking), said that while the open banking data provided to brokers (under the trusted adviser model) “solves the problem of data inconsistency and provides transparency across the entire applicant lifecycle”, the technology “isn’t there yet” from a lender perspective.

He commented: “Ideally…  open banking should be providing brokers with the complete financial data set for their customers, supporting their own processes when interviewing customers and determining the ideal outcome under best interest duty.

“The technology isn’t there yet, with gaps across different institutions. So while it provides some insights today, there is still a long way to go.”

However, he added that the “rapid technology revolution” that the industry has undergone in the last two years since the pandemic began “highlights that it’s well within our grasp”.

The issue of data quality in the open banking ecosystem is currently the subject of a consultation from the Australian Competition & Consumer Commission (ACCC).

The competition watchdog is calling on stakeholders to provide feedback on their views of issues that may be resulting in poor quality data emerging from the consumer data right (CDR) and steps that could be taken to address these issues from a “compliance or enforcement perspective”.

Submissions are open until 21 November 2022.

[Related: CDR data quality issues targeted in new consultation]