Development of trust key to open banking

A lack of trust and understanding of open banking and the Consumer Data Right (CDR) is one of the largest barriers to lenders, borrowers, and brokers utilising the technology, according to a panel of industry representatives speaking at a webinar hosted by fintech Frollo on Thursday (3 August).

Darren Boddington (consultant and former chief digital information officer at Credit Union SA), Linda Craven (chief digital and information officer of Defence Bank), Tony Carn (chief customer officer at NextGen), and Tony Thrassis (chief executive of Frollo) discussed the obstacles preventing further implementation of open banking in lending.

Ms Craven said research conducted by Defence Bank had found it was “absolutely critical” to establish trust with potential borrowers to be able to better harness the CDR, while a lack of knowledge of the technology was one of its greatest barriers.

“We found, when our researcher explained the process for gathering information through the open banking mechanism, that the trust factor went up significantly,” Ms Craven said.

The research also found consumer demographics influenced the trust that borrowers placed in the technology, with older individuals and females less trusting of the CDR than younger people and males, according to Ms Craven.

Mr Boddington said the results displayed the obstacle that open banking faces, adding: “[L]ending is underpinned by trust, you’re providing a lot of personal, sensitive information, and that needs to be secure and trusted.”

A screen scraping alternative

Mr Thrassis said those in the banking sector needed to look to adopt open banking and shift away from screen scraping flagging that the ACCC and Treasury are due to commence a “consultation on screen scraping and the removal of screen scraping from the banking system”.

The real-time nature of the CDR and the currency of the information provided through it could make the jobs of brokers and lenders and the lives of borrowers easier, the panel added.

Mr Carn stated: “I think the biggest benefit through CDR is all around currency and provenance … you can actually accept a deal as a lender and say: ‘This data is relevant up to today’. [So you are] not looking at a statement that was three weeks old [and] need another one.

“Using the broker channel as an example, there’s lots of brokers who are very good at positioning screen scraping and collecting data in that way but that’s prior to even choosing a lender.

“That can be very helpful in getting an assessment and determining what lender they’re going to use but that data is useless to the lender.

“With CDR you can actually deliver an application and say there’s provenance of this data.”

Open banking benefits

The panel also emphasised the efficiency and time-saving benefits that open banking and the CDR could deliver, particularly for the home loan process, by taking the complexity of providing the significant amount of data needed to process a loan out of the borrower’s hands.

“There’s certainly opportunities to look at what can be done to straight-through process the lending data gathering, and processing to provide an exceptional member experience, especially during the home purchase,” Mr Boddington declared.

Another advantage was improving the security for borrowers, the panellists said.

Ms Craven told webinar viewers that the bank had faced instances where customers sent through information they “actually don’t want” resulting in them having to go back and ask them to “please redact your PII (personal identifying information) and your PCI DSS (payment card industry data security standard) data”.

Education

The panel called on the government to implement much-needed CDR education for the public, along with an improved settlement process so open banking could be more readily used.

For example, it was highlighted that some states still need a wet signature on loan forms and don’t take an electronic signature, which holds back the use cases of open banking.

Ms Craven concluded: “We need the government departments to catch up with the AI and the digital capability that we’ve got in order to make the process a lot better for the members and the customers.”

[Related: CDR expansion delayed to ‘allow the CDR to mature’]

Josh Needs is a journalist on Momentum's mortgages titles: The Adviser and Mortgage Business. 

Since joining Momentum in 2022, Josh has written on a range of topics in the financial services space, including for Accountants Daily and SMSF Adviser.

Prior to joining Momentum, wrote news, feature articles and video reviews for Unsealed 4x4, a specialist offroad motoring website.

He studied journalism at the University of NSW.

You can email Josh on: josh.needs@momentummedia.com.au