On 1 November, the Consumer Data Right was expanded to include mortgage data for the first time. We take a look at how the new regime applies, what it means for brokers, and what the industry thinks about its utilisation.
The Consumer Data Right (CDR) has been active now for around six months, having started with the banking sector from July 2020 (as part of the open banking regime) and eventually intended to make its way to other sectors of the economy, including energy and telecommunications.
The CDR aims to help consumers monitor their finances (and eventually utilities and other services) and compare and switch between different offerings more easily.
The system also aims to encourage innovation and competition between service providers, helping you to access products and services that better suit your specific needs.
Under the CDR, users can direct their data to be shared via a secure online system with an accredited provider of their choice.
While the regime has been in operation since 1 July 2020, only customers of the big four banks have been able to share their data.
Previously, CDR only applied to big four bank data on savings and transaction accounts, call accounts, term deposit accounts, current accounts, cheque accounts, debit, credit or charge card accounts, personal basic accounts and GST or tax accounts.
However, as of 1 November 2020, individual customers of ANZ, CBA, NAB and Westpac can now share their data on their joint accounts, mortgages, mortgage offsets and personal loan accounts with an accredited recipient.
As well as data about themselves, their business and their transaction details or account balances, major bank customers will now be able to provide consent for accredited data recipients (of which there were only six, at the time of writing) to access the following data on their behalf:
Customer data – such as contact details and occupation
Specific account data – including account numbers, interest rates on home loans, fees and applied discounts
Authorisations relating to the accounts – such as direct debits, scheduled payments and saved payee details.
Speaking on The Adviser’s In Focus video series, Gareth Gumbley, the founder and CEO of one of the first accredited data recipients, Frollo, commented: “It’s about [helping consumers] better understand their finances, understand the products they’re using, how they’re using their products, and then ultimately to bring about competition, to help them switch to a better deal. So, we’re really thrilled to be able to use this powerful technology to deliver much, much better experiences for consumers.”
While the mortgage and finance industry has been evolving its ability to access data from a borrower (for example, through screen-scraping tools), the CDR puts the power back into a consumer’s hands, by enabling them to pick and choose who they share their data with and ensuring that there is a powerful and secure system in place to do it.
Mr Gumbley added that while CDR for mortgages is still in its early states, it is already starting to provide a good picture of a customer’s financial position and has the added benefit of being “strong, reliable and real-time data”.
He added: “But really the 1st of July 2021 is when everybody really needs to be ready, because that’s when the rest of the banks will come online and they’ll be providing their data.”
As such, the Frollo CEO said that the company – which was acquired by technology services provider NextGen.Net earlier this year – has been working closely with lenders and brokers to help engage and understand the benefits of CDR.
Indeed, NextGen.Net’s chief customer officer, Tony Carn, said the new phase of CDR marks “a pivotal moment in the evolution of how mortgages are processed in Australia”, with time and cost-saving benefits for both lenders and brokers.
As an example, Mr Carn highlighted that there were more than 130,000 mortgage applications in Australia in October 2020, representing over $17 billion in value. He suggested that the typical processing costs of a mortgage was over $350 million a month for lenders, just in assessing loan applications.
“One of the reasons why the broker market is so successful in Australia is because it’s outsourcing the origination of a lender,” Mr Carn said.
“And when you look at what that represents as a cost base to the brokers collectively, that’s over $200 million a month in costs to process those mortgages.”
He continued: “The opportunity that something like open banking brings along is a real way to revolutionise, in time, the way that we do that. So, the way that we can get better-quality data, get it digitally, get it easily, get it into the process, cut costs and… help things such as improving times to yes, as well as the customer experience, broker experience and lender bottom line.”
Indeed, NextGen.Net’s chief customer officer said that CDR also provides lenders with the confidence to utilise the data provided, as it is a regulated process with a systemised, streamlined process.
As such, it not only provides greater confidence in the validity of the data provided but could also reduce the amount of supporting documentation required in the mortgage process and “remove a lot of the ‘more information’ requests and reworks, and be able to much better digitise and automate that approval process”.
However, while the benefits of CDR and its use cases are clear, it seems that there is still a relatively low understanding of what CDR and open banking are.
Just as the second phase of CDR started, NextGen.Net and Frollo released The State of Open Banking in Australia report, which drew on interviews with several industry leaders as well as survey responses of 161 representatives of the finance industry. These included brokers (28 per cent) and aggregators (8 per cent), banks and lenders (22 per cent), fintechs (20 per cent), technology providers (11 per cent) and others (11 per cent) including consultancies.
According to the report, 71 per cent of industry respondents intend to use CDR data, with more than half (58 per cent) stating that they intend to use CDR data within the next 12 months.
However, only 78 per cent of the finance industry respondents said they were actually familiar with CDR – with brokers found to be 25 per cent less familiar with CDR than the average survey respondent.
Moreover, when asked if they intend to use open banking data, more than three-quarters of brokers (76.6 per cent) stated they currently had no intentions to do so.
The report also found that the appetite for investment is low among brokers, with over half (57 per cent) indicating that they do not intend to invest in the open banking scheme at all.
But despite this, when presented with the most popular CDR use cases (for example, streamlining the lending process through income and expense verification and the digitising of the loan application process), most brokers rated these as being highly valuable for their businesses.
Noting the “high value/low usage intent” broker paradox, Mr Carn said the issue seems to lie in the fact that brokers do not necessarily see themselves directly accessing and/or dealing with the data.
Mr Carn said this could be attributed to the current broker business model where aggregators – who do intend to use and invest in CDR – are the key providers of broker technology solutions.
He told The Adviser: “There is a very strong interest from brokers, individual brokers, around how useful the information was, but there was a low appetite to be investing in that and seeing that become incorporated in part of their process.
“But I think that, in itself, is not a negative. I think it’s reflective of where consumer awareness is around open banking and the consumer data right at present.
“And so, I think it highlights, too, there’s a great opportunity there really for us to improve consumer awareness and learn what the benefits are that can be delivered out of that.”
Mr Carn also highlighted, however, that 83 per cent of aggregators do intend to invest in CDR. On average, aggregators are looking to spend up to $100,000 in the next 12 months, according to the report.
Mr Carn added: “Looking at the survey results, although individual brokers are not as aware, it’s a different story among aggregators. They are very agile and are facilitating the framework for individual brokers and their businesses to thrive.”
The low take-up by brokers could also have been due to the fact that the proposal to enable brokers to receive CDR data was still to be finalised at the time of the report’s survey (following consultation on the matter).
Given the fact that the vast majority of brokers value the use cases of open banking, NextGen.Net and Frollo suggested that there could be better education on the practical applications of the CDR scheme generally.
Mr Carn concluded that brokers would benefit from CDR not just for mortgage applications, but also in helping get customers “fit for finance” before and after.
He said: “I think one of the great opportunities that open banking presents to a broker is the ability to have a journey with a customer. And that journey – getting, what I call, financially fit – is about [a consumer] understanding: What are my expenses? What serviceability can I have? What savings do I need to do to get ready for that? And then having that very rich data to be able to take a lot of friction out of the application process when they are ready, which means lower costs for a broker, a lower cost for a lender, a faster time to yes, and a better overall experience.
“I think it works very, very well for best interests duty. Plus, as the onus is on the borrower to make sure that they have access to their data and understand what they’re doing properly, and I think there’s a responsibility, too (although it’s already being done in the broker market), to make sure that the customer’s hand is being properly held and they understand what they’re doing and then what their responsibilities are in that process.”
Frollo’s Mr Gumbley agreed, stating: “This data could be refreshed six times a day, every time somebody comes into an app or onto a website…
“We get to see someone’s life evolving and unpacking and changing, and those life events starting to evolve. And I think that is what is going to be really exciting for brokers in this segment when they start to understand what it means to see the real-time data and have a much more dynamic relationship with the customer than they’ve had previously.”
He concluded: “Once we have more organisations successfully delivering on more use cases, the ecosystem will be ready for innovation to thrive.”
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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