Understanding Open Banking

Open Banking allows access to certain consumer banking and financial account data through third-party applications.

What data can be shared through Open Banking?

Australia’s Consumer Data Right (CDR) ‘opens’ the following data to be shared among participating banks, credit unions, fintech companies, and utility providers such as gas and electricity companies.¹

Account data

This may include a person’s bank account information, such as the account holder’s name, account balance, payees, direct debits, and scheduled payments.

Product usage

Examples include data regarding financial product use, such as overdrafts, interest rates, and electricity usage.

Payment initiation

Open Banking may also enable third-party providers to access details about payment amounts, payee details, and purpose of a payment.

How does Open Banking work?

In Australia, such access is only permitted after someone gives their consent for their data to be accessed by a bank, credit union, fintech company, energy provider, or regulated payment provider.

With Open Banking and the CDR, individuals can:

• Give and revoke consent for their data to be used at any time.
• Amend their authorisation at any time.
• Choose what data can be accessed — and by whom.
• Make a request to correct data if it is inaccurate.
• Prevent data being used for direct marketing, unless they expressly opt in.
• Have data destroyed or de-identified at their request when such data is no longer needed.

Examples of Open Banking use cases

Open Banking is in its early stages in Australia. Here are some examples of its potential use cases:

• Payments: May enable people to use payment services to send and receive money.
• Budgeting: Securely sync financial accounts to a budgeting app, to track and manage expenses.
• Loan approval: May facilitate sharing of transaction history with lenders, potentially quickening loan application processes.
• Advisory support: May allow individuals to engage advisers for a range of financial needs around debt reduction, budgeting, saving and investing, and superannuation planning.
• Personal finance aggregation: May enable people to aggregate their account information across banks and building societies to better understand their total cash-at-hand, net worth, and other indicators.

Potential benefits of Open Banking

There are several potential benefits of Open Banking, such as:

• Personalised offerings: Financial institutions that are given permission to securely access and share customer data may be better placed to tailor products to individual needs and preferences.
• Simple account management: With seamless integration between different financial institutions, people may control how their financial information is shared. It may also save time and ease the process of applying for other financial and energy-related products.
• Informed decision-making: People who can easily access and analyse their financial data across accounts may gain greater clarity regarding their overall financial health.

Potential risks of Open Banking

There may also be risks to Open Banking. Keep these potential concerns in mind:

• Privacy concerns: Any sharing of sensitive financial data is prone to potential misuse of personal information.
• Data breaches: Open Banking may create a risk of a data breach, potentially exposing customer information.
• Cyber threats: Phishing attacks, malware, and other malicious activities remain common across many financial services and standards, including Open Banking.

There are stringent regulations and rules regarding what, when, where, and how often consumer data can be shared. Protect yourself from fraud by only allowing trusted financial providers to access data. Also, review access levels regularly and only share the required level of information needed.

Making sure data stays secure

Open Banking may be a fairly recent introduction in Australia, but growing awareness and adoption could support ever-changing finance habits, needs, and preferences. Learn how PayPal works to protect data.