Open banking and the consumer data right have been in effect in Australia for years now, but its impacts and use cases are only starting to feed through into mortgages now. We take a look at how the new regime will impact mortgages.
Partnered by NextGen
Breakthroughs in technology – and uptake of technology in the finance space – have been accelerating at a rapid pace ever since the COVID-19 pandemic began, with consumers, lenders and brokers all now embracing technology in their day-to-day life.
But there’s one major technological breakthrough that has been building in the background for the past few years – which is set to make the mortgage process much more efficient and transparent. Enter: open banking.
Open banking (the sharing of data digitally) is all well and good, but the key part holding it all together is the consumer data right (CDR). While the consumer data right launched in 2020, it was only earlier this year that the broking industry was given greater inclusion in the regime, following rule changes.
In October 2021, the government confirmed amendments to the CDR rules, formalising the ability for consumers to share their data with “trusted advisers”, such as their mortgage broker, financial adviser, accountant, tax agent or financial counsellor.
The changes came about after public consultation on the standards that, in their previous state, did not allow the disclosure of CDR data by an accredited data recipient such as a bank, to other parties outside of the system that consumers wished to share their data with.
However, after industry consultation and feedback, the government changed the rules in a bid to enable borrowers to have greater choice in whom they are sharing their data with so they can better compare and switch between products and services. It also helps ensure privacy and security protections are retained to control what data is shared, for how long, with whom and for what purposes.
As such, as of 1 February 2022, mortgage brokers are now considered “trusted advisors,” meaning they are allowed to share and receive data from a consumer so long as they grant their consent.
That gives brokers better ability to access the consumer’s data for their benefit and can better help them decide on a loan application or ready to finance.
Speaking on the Mortgage Business Spotlight podcast, NextGen’s head of broker partnerships, Renee Blethyn, commented that the expansion “really aligns to the mortgage broker proposition, which is about advocating for the consumer”.
She said: “There’s real alignment between what the principles of CDR is about – which is choice, convenience and control – and better outcomes for consumers.
“So, we see that there’s real alignment there in terms of what mortgage brokers look to provide as their key proposition to consumers.”
Rules and guidelines for the CDR trusted advisers
The OAIC guide outlines that a consumer can nominate certain people as their trusted advisers and provide consent for an accredited data recipient (ADR) – such as a lender – to share data with that adviser, so that they can receive advice or a service.
It specifies that an ADR cannot make the nomination of a trusted adviser, the nomination of a particular person as a trusted adviser, or the giving of consent to disclose data to a trusted adviser, a condition for the supply of the goods or services.
They will also be required to ensure the trusted adviser nominated is one of the approved professions (such as a broker or financial planner) and to keep records proving they took the steps necessary to verify it.
A step-by-step guide of how it works
While speaking on the Mortgage Business Spotlight podcast, Ms Blethyn explained exactly how the process of sharing open banking data with brokers would work.
Ms Blethyn explained: “I’m going to give you four components to the scenario. We have:
- You, as the customer
- We have your broker (and let’s just call him ‘Bob the broker’)
- The data holder (an ADI in Australia who’s required to share your information if they hold your bank account, credit card, personal loan, [and are asked to] share that information only with your consent); and
- An accredited data recipient (ADR).
“At the moment in Australia, we’ve got about 18 active ADRs and it’s a rapidly changing space. The types of businesses that are ADRs could be a lender or they could be an intermediary provider who specialises in providing a personal financial management app, for example, to consumers.
“You let Bob know that you want to buy a house and Bob wants to help you with that home loan, but what he needs is an idea of your financial situation… You would give your consent to that personal financial management app. What that consent would’ve done is contacted your bank in that instance to say, ‘[this customer] wants to share her data. Please release that data…
“All of your banking information that you chose to share would’ve been shared via an API, with yourself and with Bob. [And] in a format that gives you an easy understanding of your financial position, a copy of all of the raw data, all of your transactions, as well as some insights potentially about your spending.
“It’s basically a complete total picture that puts you, as the customer, in a position where you get a feeling and an engaging way to understand, [whether] you are ready for finance.
“However, it also enables Bob the Broker to have that full picture, to help him make that loan recommendation as to what was the best loan for you to buy your house.
“That data is actually consumed within Bob’s aggregator software, and he would then work through his normal process of following his best interest duty.”
Concluding the final steps of the process, Ms Blethyn continued: “He [the broker] would then walk through that normal process of providing you with a list of lenders and products based on the information that he’s been able to gather.”
According to NextGen’s head of broker partnerships, the key difference between using an open banking solution rather than bank scraping or sending bank statements is speed and security.
“We are talking a matter of minutes for all of that data to be shared and consumed and it would be done in a secure platform,” Ms Blethyn explained.
“That raw data would be made available and shared within a matter of minutes, meaning you wouldn’t have to go and get copies of all of your bank statements. So what that means from a broker perspective is a severe reduction in supporting documentation required. And, from a lender perspective, they would actually have the data that is stamped as generated via CDR, meaning that they can trust that information.
“There’s big wins for brokers with the application process, in terms of the supporting documentation piece. As you can imagine, if you are needing to provide less, there should be less information that you have to go back and forth with [because you are] able to validate that information, which is real time, up to date and accurate.
“It’s very different to the way that some of the information is transferred today. The accuracy of the data is much richer, and there’s the number of data points that are available in that information that are currently not available in existing services.”
Ms Blethyn concluded by saying that the trusted adviser rules for CDR benefit both broker and consumers.
The head of broker partnerships elaborated: “As a consumer, it’s a much safer way to do it. From Bob the Broker’s point of view, he actually gets access to everything as a trusted advisor where he would’ve had to get it from a different way.”
Why brokers should participate as CDR trusted advisers
While the benefits of the trusted adviser rules are clear, there is still some way to go to making the benefits better understood.
Indeed, a recent survey of 1,066 Australians, conducted by NextGen open banking subsidiary Frollo, found that 51 per cent of Australians trust their banks enough to share financial information with them by linking their accounts, while only 34 per cent felt the same level of trust in brokers or financial advisers.
As such, more education may be needed from brokers to educate consumers on how open banking works and puts “them in control” of their data.
Ms Blethyn said: “The customers that we interviewed all demonstrated that if a broker could articulate to them the benefits of going ahead with a particular service and/or lending product in a way that was personalised, tailored to that customer, they would do it 100 per cent of the time.
“I know that a lot of brokers well understand the benefits of being able to do things in an efficient way, a way that is safe and is trustworthy and means that it gets the best customer outcome.
“...But being able to tie those benefits back to utilising an open banking platform, that’s the tip.”
Tune in to hear more!
You can find out more about how the open banking and consumer data right will revolutionise mortgages in the Spotlight podcast on our sister brand, Mortgage Business.
Tune in to “What open banking means for the mortgage industry”, partnered by NextGen, to hear more from NextGen’s head of broker partnerships, Renee Blethyn, as she unpacks and demystifies what the changes mean for mortgages and mortgage brokers.