The landscape in the banking sector is changing with the introduction of open banking and it could prove advantageous for the smaller players.

Open banking was introduced back in August with the promise consumers would have control over the data banks had on them.

Since August the big four banks have had to engage in beta testing along with a handful of smaller firms selected by the ACCC – one of which was fintech Identitii (ASX:ID8).

But from February banks will have to provide all customers with access to data on their accounts. Smaller banks have more time to prepare.

In February 2021 compliance is required for mortgage processes and in July for overdrafts, personal and business loans.

The biggest implications for consumers is that they would control the data banks had over them. Additionally it will be easier to switch – including refinancing of loans.


Levelling the playing field

Simon Lyons, managing director of BNK Bank (ASX:BBC), said that consumers would win as banking became easier and competition increased.

His company began in 1982 as credit union Goldfields Money. In March this year it rebranded as a digital bank after a merger with mortgage aggregator Finsure.

“We strongly believe customers will be the ultimate winners in an open banking world where their data is finally unmoored and becomes valuable to them,” Lyons told Stockhead.

“Not only will customers be able to switch with less friction, customers should expect to be able to connect all their accounts into one place, giving them full visibility of their finances.

“It should provide a banking environment whereby the best providers of services will win and retain the most customers and in effect start to level a playing field for banking in Australia”.


Understanding your customers better

Lyons also said it would be a boost for smaller incumbents such as BNK. Companies like his have legacy free core banking platforms with open API architecture. API software is more integrated and efficient than legacy bank software.

“Open banking will provide opportunities for names that have never been heard of before to make a substantial impact within an industry where the Big 4 and their legacy systems have dominated for so long,” he said.

“At BNK we have understood our customers for 38 years by knowing their business and personal daily financial rituals.

“The challenge we are responding to now, is to translate that intimate knowledge into the digital realm.

“So our goal with open banking is that our personal and business customers continue to feel understood and serviced, and that behind the scenes this will come from analysing their preferences and actions as they go about managing their financial affairs, rather than their footsteps and words as they go in and out of our branches.”


Development & cyber-security teams will converge

But investing in open banking initiatives will also mean security concerns, not just for the big banks but fintechs too.

Jason Baden, regional vice president of traffic control service F5 Networks, predicts more investments both in open banking and cybersecurity. He suggested developers and security teams directly working together was one possibility.

“The convergence between DevOps and security teams will become much more prevalent,” he said.

“The thriving application capital era is driving the need for organisations to agilely adapt to rapid app developments to ensure security risks are mitigated and avoid slowing down app deployment pipelines.”

Lyons told Stockhead that while security risks existed, Australia could learn from the experiences of other countries. One example is the UK, which legalised open banking only last year.


Banks and fintechs pairing up?

Narayan Iyer, head of Asia-Pacific markets at IT service provider Cognizant, suggested the industry may see banks and fintechs working together.

“As open banking kicks off in Australia, financial organisations will fight for a share of the pie,” he said.

“We should see greater collaboration between upstart fintechs, incumbent players and potentially digital giants…to compete effectively and better meet Australian consumers’ demand for more digitally designed financial services.”

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