Do your financial institutions use Open Banking or screen scraping? Do you even know what those are? If you’re not sure, you’re definitely going to want to read this, Frollo Chief Customer Officer Simon Docherty says.

If you’re among the almost 50 per cent of Australian mortgage holders who switched lenders or intend to do so due to rising interest rates in the past year, your new lender would have used – or will use – one of these methods to access your financial data.

Before you rush to change your online banking passwords, rest assured that both of these options for data transfer between institutions operate within Australian regulations. But it’s Open Banking that’s far more secure, making it the biggest innovation in lending for years.

For individual borrowers, it saves time waiting on approval for a more affordable mortgage, or loan for a dream car or holiday.

Open Banking also enables greater competition and choice for all consumers by offering new opportunities for smaller mutual banks jostling up against “the Big Four”.

That’s because it can supercharge mutuals’ ability to offer even more bespoke products and personalised service – key demands from Australians battling through cost of living pressures and anxiety about new tech.


Screen scraping set to get scratched

Screen scraping collects information from a webpage for use in another portal. Most screen scraping is done legally when customers willingly share their online banking username and password, usually through a link sent by a mortgage broker or another financial institution in the loan approval process.

However, bad actors also use screen scraping to steal data – hence the warnings from regulators and financial institutions about link clicking and password protection.

Another downside of screen scraping is that it does not allow for data minimisation – or accessing only the information relevant to a specific loan application.

Instead, it generally lifts any data available, which means consumers can’t control what is taken – or how it’s used.

The downside for financial institutions is that the same security measures put in place to protect their customers – like Two-Factor Authentication – make data collection through screen-scraping less and less reliable.

While screen scraping is currently allowed by the Australian Competition and Consumer Commission, the ACCC and Treasury are expected to soon start consultation on its removal from the banking system due to the far superior security of Open Banking.

That’s already happening in the eurozone, which has some of the world’s strongest safeguards for consumers and their data, as well as the UK and US, with all those major regions moving towards Open Banking.


How Open Banking works

Open Banking gives consumers a safe and secure way to share their data with a accredited and regulated third party while keeping control over how their data is used.

It works through Application Programming Interface (API) technology that connects different applications to exchange data that, unlike screen-scraped information, is entirely encrypted.

Consumers never have to share their usernames and passwords, and they can select the data they want to share, how long they want to share it and what it can be used for.

Banks using it must conform to ACCC regulations, and any third parties (such as other financial institutions or fintech businesses) that receive your banking data must be ACCC-accredited.


Open Banking’s obvious benefits

Lenders working with NextGen, Australia’s leading technology solution provider for the lending industry, report that Open Banking cuts the time to process income and expense information from an average of six days to a few minutes.

It does this by removing the need for bank staff to review bank statements and pay slips manually, and accessing customers’ financial information in real-time, ensuring it’s up to date.

All this enables lenders to process more applications faster for customers and provides an opportunity for banks to cut the current $5b annual cost of processing loans in Australia.

At the same time, it improves responsible lending. A lender in the UK found that for every one customer they would reject because of adverse Open Banking information, there would be six or seven customers they would have rejected without that information.

Open Banking additionally provides a means for lenders to track the spending and savings of potential customers. Banks can then say “Come back in three months” instead of “Come back next year” to, for example, a first home buyer desperate to get into the market.


Mutual trust

While our finance sector is dominated by the major four banks, Australia has more than 60 mutual banks, building societies and credit unions, which serve more than four million people.

Many were established more than 100 years ago by workers’ groups and communities seeking an alternative to larger, investor-owned banks.

Today mutuals still take pride in putting members’ interests first through providing competitive rates, individual service and customised products without shareholder pressure for profits.

But given the average mutual bank customer has accounts with 2.6 different financial institutions, mutuals often don’t have the complete picture they need to serve them. Now, for the first time, Open Banking enables mutuals to see more of their members’ full financial life, empowering them to build products that better meet their customers’ needs.

There’s already great leadership within mutuals who can blend great customer service with the new digital tools across the entire lending relationship.

It’s those people who can build trust in tech and leverage its insights for customers who will build the best banks for the future.


Simon Docherty is Frollo’s Chief Customer Officer. Frollo is a pioneer in Open Banking and CDR.

Clients using its Open Banking platform include AMP Advice, P&N Bank, Beyond Bank, and, through a partnership with NextGen, mortgage aggregator Finsure. Frollo also offers a budgeting app for consumers.


This article was developed in collaboration with Frollo, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.