Open banking most used for expense verification: Frollo

Australian open banking provider Frollo (owned by NextGen.Net) has published its second annual report on the open banking ecosystem, finding that open banking data is most used for income and expense verification for lending purposes.

While the open banking system has been in effect since July 2020 (starting with the big four banks sharing data on deposit and transaction accounts and credit cards before moving into home loans), the mandatory regime expanded to cover non-major banks on 1 November 2021, too.

Frollo’s new report, The State of Open Banking 2021, shows that the open banking ecosystem has expanded and improved in the past 18 months, with 70 banks having started sharing consumer data and 14 businesses becoming accredited data recipients this year. This is on top of the five data holders and five data recipients in 2020. 

The most popular use cases were found to be: 

• Lending: income and expense verification (highly valued by 59 per cent of respondents) and credit scoring algorithms (37 per cent)
• Money management: multibank aggregation (50 per cent) and personal finance Management (50 per cent)
• Verification: customer onboarding (49 per cent), identity verification (38 per cent), account verification (34 per cent) and balance checks (30 per cent)  

According to the report, 92 per cent of the 131 finance industry members responding to the report survey said they planned to use open banking data, with nearly two-thirds (62 per cent) saying they would do so within the next 12 months, and 38 per cent within the next six months (more than double than in the 2020 survey).

With the government recently expanding the Consumer Data Right regime to brokers and other “trusted advisers” (coming into effect on 1 February 2022 or when consumer experience standards are finalised), more “trusted advisers” said they were aware of open banking this year than last (25 per cent higher, at 81 per cent), with income and expense verification and identity verification being the two most popular open banking use cases according to this segment. 

Speaking of the opportunities of open banking for brokers, Tony Carn, NextGen.Net’s chief customer officer, said: “For brokers, Open Banking presents a new way for how customers can be sourced and nurtured through their life cycle. It will empower brokers to engage with potential borrowers earlier in the finance journey and well after the initial loan has settled...

“There are some big opportunities for lenders and brokers when it comes to open banking, especially when we talk about integration and automation. It’s not just about having access to that source of truth data now, it’s about how that information is made available, how it’s collected, categorised and standardised so it can deliver real benefits to all parties.

“The expectation of customers to have a lender or a broker who can tap into Open Banking data is really high and growing rapidly; this is a pivotal moment in the lending industry and the use of open banking data to enhance customer experiences is going to become the standard moving forward.”

The biggest challenges that respondents see to achieving their CDR objectives are consumer education and uptake (32 per cent), complexity and clarity of the rules (23 per cent) and cost (18 per cent).  

Looking forward, respondents said that CDR data could be used for more cases other than currently planned, with 83 per cent stating that “financial product switching” would be valuable for their organisation, followed by open banking payments (78 per cent), sharing data from superannuation products (75 per cent), sharing data from investment products (72 per cent) and sharing data from the insurance sector (71 per cent).

[Related: REA Group to trial ‘financial passport’ for home buyers]