New technologies and an increase in privacy concerns mean that the landscape of the financial services industry is rapidly changing. The coming years will see a complete shake-up of the sector as consumers are given greater flexibility in how they make transactions, manage their money, and share their financial information.
One of the major drivers of these changes is open banking.
Open banking introduces an era of greater financial transparency and control. It will provide consumers with complete access to the financial data that banks and financial institutions hold on them.
But what exactly will this mean for Australian banks and how can you prepare your workforce for the impending changes?
We take a detailed look at how open banking will change the future of banks, financial service providers, and their talent needs.
What is open banking and how does it affect customers?
Open banking is a system under which banks open up their application programming interfaces (APIs) to third parties. This gives account holders greater financial transparency options by providing them access to all the financial data held by the financial institutions they use as well as granting them control over who else can access this data.
With open banking, third parties can utilise the financial information they need to develop new apps and services, with the aim being that better and cheaper financial products will be made available to consumers. This should occur because a greater number of banking competitors should be able to use consumer financial data to create customised offers that can undercut what is currently being offered to consumers.
Open banking was introduced in Australia in 2019 when the Australian Government passed a new law giving customers access to and control of all transaction, mortgage, and credit card information held on them if they request it. These new laws followed similar recent changes to financial systems in the UK and Europe. The laws will initially apply to the Big Four banks, with smaller banks also eventually being required to meet these requirements at a later time.
Financial data availability
There are four types of consumer financial information that will be made available under open banking:
Product data - Information about rates, fees, and features for each bank's products. This data can be accessed through publicly accessible APIs.
Customer data - Personal data about consumers such as phone number, email address, and home address information.
Account data - This includes information about specific accounts such as balances, direct debits, and regular repayments.
Transaction data - Transaction data is information about the transactions on your account, including how much you spend and where you made the transaction.
The benefits of open banking
While the ultimate impacts of the new open banking laws will likely take some years to be fully realised, open banking should provide a host of benefits to consumers. These are largely centred around improved choice and portability. Being able to easily share financial data with third parties via APIs means there’s a much better likelihood of getting a better deal than that provided by an existing bank that a customer may have stuck with for over a decade. This customer inertia had allowed the financial services industry to stagnate and overcharge customers for the services they were providing.
Other likely benefits of open banking will include streamlined lending, where the entire process of applying for and being approved for a loan should be simplified and shortened. It will automate many existing accounting processes and help fight fraud and wastage on both the consumer and banking side.
Impact on banks and FinTechs
One of the major benefits open banking will bring is opening up the financial services landscape to FinTech companies and other smaller financial services organisations. Many newer FinTechs have based their business model on improved and streamlined customer service as well as greater transparency over fees and hidden charges.
By making it easier for customers to share their data with these organisations and take advantage of the cheaper financial products they offer, this places a great deal of pressure on existing banks to similarly improve their level of service. This should ultimately provide consumers with greater transparency, customer service, and lower cost banking services no matter who they choose to bank with.
In addition to improving choice and competition, the regulations have also been enacted in response to the emergence of new kinds of digital ecosystems offered by large tech companies like Google, Apple, Facebook, and Amazon as well as new smaller FinTech and DeFi (Decentralised Finance) platforms. It essentially opens up the whole financial sector to new players in the tech market so that they can all explore and offer new financial products and ways of doing business that take full advantage of the valuable customer data that was previously siloed within the banks.
These changes will cause some notable impacts to staffing within the financial services sector. It will require permanent and ongoing changes to the way data is structured, stored, and transmitted. This will mean that many existing roles will need to take on new tasks and entirely new roles will need to be created. An example of the types of new roles that will need to be established are those responsible for implementing and managing the additional privacy requirements around how consumer data is used. It will also mean that tech teams will need to work more closely with other financial staff than they have in the past as data utilisation and management becomes a more central pillar of nearly all banking operations.
Evolving roles and sourcing the new talent to fill them will form just part of the challenges that banks will need to come to terms with. This is because this will be occurring as part of much wider changes in the financial services landscape as customer behaviours and expectations shift and regulatory changes occur. It is clear that the way banks operate, their demand for tech talent, and the way customers interact with their banking providers will change dramatically in the coming decade.
An open future
While open banking seems to be a positive step, there still remain some unknowns in the near future around the direction of the entire financial industry. This is because the open banking changes and the rapid changes occurring in the tech and financial sectors in general will lead to further rapid innovation in the space.
With the introduction of open banking however, it’s apparent that the financial services industry is going to increasingly become more fluid and transparent. Open banking is a key but only single part of a massive shift that is currently underway in the financial sector where companies will need to adapt quickly to the new regulations as well as changing customer expectations or else risk being rapidly left behind by the competition.
If you’re interested in finding a role in FinTech or you’re hiring new staff, get in touch with our consultant, Sandy Willis on 0291952370 or sandywillis@future-you.com.au who is working with FinTech's to attract the best product talent possible.
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