You’ve probably seen references in the newspapers to “open banking” and “comprehensive credit reporting” but what does it all mean for the average consumer?
Both are policies that will improve access to financial services data in Australia for the benefit of both consumers and lenders. However, there are key differences between the two and the way that they affect you as an individual.
What is open banking?
Open banking will give you greater access to, and control over, the information that banks and other financial institutions currently hold about you.
Today you can see a lot of information banks hold about you through internet banking and your bank statements. This includes data about how you how you manage your finances, where you spend your money and how you use financial services.
Open banking will give you the right to require your bank to share that data with a trusted third party of your choice, for example, a product comparison website that might help you identify a better deal from a competitor.
Your data is valuable and open banking will enable you to benefit from it more easily.
Open banking will kick off from July 1, 2019. From then, major banks will have to make data available to trusted third parties, on your request, if you have a credit card, debit card, deposit or transaction account.
How will open banking benefit me?
More control over your data will help you make informed decisions about the products that are right for you. It will also encourage competition and innovation, leading to the development of better products.
How can I use open banking?
There are countless uses. You could ask a trusted comparison website to recommend a credit card for you based on your actual usage at your current bank.
You might ask all your financial services providers to share your data with a trusted financial management app, allowing you to set up a single screen to manage all your finances, and receive tips on how to save more or cut spending.
How is my financial data protected?
Precautions are being put in place to ensure you remain in control of how your data is accessed and used at all times. Your data will only be shared with your consent, and only used for what you want.
Financial institutions with whom your data is shared will need to be accredited by a government-authorised organisation and adhere to strict security and privacy standards.
You have the right to withdraw consent at any time.
What is comprehensive credit reporting?
While open banking gives you increased access to your own data, comprehensive credit reporting provides lenders with more detailed information about your credit history – to help them lend more responsibly, and reward consumers who pay their debts on time.
Under the recent changes, banks can report not just whether you have had a default, but also any outstanding loans you have, and your monthly repayment history, revealing how much debt you have and how good you are at paying it back.
This is all included in your credit report.
It is important to note that as an individual, you cannot opt out of comprehensive credit reporting.
How can I benefit from comprehensive credit reporting?
If you’ve been diligent in making your repayments on time, you may be able to borrow money more easily when you need it, and at a lower interest rate than before.
People with little credit history previously may now find it easier to get a loan, because lenders can see that they have been regular with repayments on a credit card obtained years earlier.
Who can see my credit history?
Your credit report is created and managed by a credit reporting body, who can provide it to a credit provider when you apply for a loan from a bank or other lenders, apply for a store card, a home loan or phone or utility account, or rent things like a fridge or TV.
You can obtain a free copy once a year from one of the credit reporting bodies.
Open banking and comprehensive credit reporting both involve putting your data to better use.
Open banking will allow you to benefit in many ways, from getting help to find better and cheaper loans to using tools that will simplify your finances, while comprehensive credit reporting will help lenders make better decisions when you apply for credit.
Together they will provide a better and fairer banking experience for Australian consumers.