Imagine having total visibility of all your accounts (even if they are with different banks) in one place, making it easy to manage payments and transfers, get personal financial advice from an advisor, and skip time-consuming applications for things like insurance and mortgages.
Those are just some of the many benefits that will arise in future as financial service providers move to a world of ‘open banking’.
Put simply, open banking refers to a bank sharing your financial data – securely and with your approval - with trusted third parties, so the information can be securely integrated into a variety of apps and digital products.
There are big potential benefits for consumers, businesses and government, however there are also trust, privacy and data security risks that need to be addressed in order to make the technology a success.
How does open banking work?
Simply put, banks and third parties share a set of agreed and standardised customer data using a piece of software called an API (Application Programming Interface).
The third party can build new and interesting apps and customer experiences using the data made available through the API.
An example is Moneybox, which takes your spare change and automatically invests it for you.
Opportunity for industry-led approach
The UK and Europe are already making significant progress in this space and the New Zealand Government is determined to not be left behind.
Kris Faafoi, the Minister of Commerce and Consumer Affairs, is encouraging the banking industry to lead the adoption of open banking in New Zealand, saying in a speech at the Payments NZ conference in June:
“Opening up aspects of the banking system could provide benefits to New Zealand consumers by providing them with increased choice and empowering them to pursue and achieve their financial goals.
“Benefits could exist in areas such as budgeting, banking competition, aggregating financial information, and, of course, payments.”
If the banking industry fails to progress the adoption of Open Banking in New Zealand in a timely way, or does not deliver an open banking regime that the Government believes is positive for New Zealand consumers, the Government may step in and regulate for open banking reform, using a similar approach to that taken by the UK, European and Australian Governments.
Prior to the Government’s announcements on open banking, the banking industry and Payments NZ embarked on a long term project to develop APIs.
That project has resulted in a pilot which is being led by Payments NZ, and includes Westpac, BNZ and ASB along with Datacom, Trade Me and Paymark.
Currently, the focus is on developing an account information API and a payments API.
An account information API would enable a FinTech to develop a product that aggregates customers’ financial data from many sources in one place.
A payments API would allow for the integration of streamlined bank payment systems into other apps, making purchases easier, quicker and less prone to human error.
Payments NZ will share the pilot’s findings with the Government, which will provide feedback on how it sees the banking industry’s approach to open banking progressing.
The potential to revolutionise banking
Westpac is enthusiastic about the potential of open banking and has been working independently on APIs for some time.
In a notable partnership with Datacom, we’re allowing New Zealanders to make payments to their local council.
For example, when a Westpac customer goes to Opotiki District Council’s website to pay a parking ticket, they are prompted to log in to their internet banking via a Westpac interface, and authorise the payment from there. The funds are settled almost immediately.
The bank also offers CashNav, an app developed by a FinTech called Moven, which allows customers to track and categorise their spending so they can better understand their purchasing habits.
Westpac NZ’s director of open banking, Matt Haigh, says the technology has the potential to revolutionise New Zealanders’ lives.
“We’re excited to be one of the banks at the forefront of this change – working with a wide range of businesses to investigate what’s possible, and help deliver next-level customer experiences through innovative new products and services.”
Will it be safe and secure?
Giving your banking details over to third parties sounds like an opportunity for scammers, which is why banks are taking their time to ensure that it is safe before launching to the public.
“It is the duty of a bank to keep customers’ money and information safe. That doesn’t change with open banking,” says Matt.
“While we’re hugely excited about the possibilities of open banking, we have some genuine concerns around protecting the security and privacy of customer information. As a result, the integrity of customer data guides every decision we make in this space.”