On the face of it, Open Banking is transforming Australia’s financial landscape, empowering customers to take control of their finances, make better-informed decisions and potentially managing multiple accounts through a single application.The rationale behind the system? To promote competition and allow innovation to flourish. We ask NOW Finance Group FOUNDER and CEO, Richard Blumberg, how effective it is in practice.
What will open banking actually deliver for consumers?
“First and foremost, it delivers them with choice and allows them to decide exactly who can access their financial information. It also enables them to shop around for financial products and services. Traditionally, consumers were captive to one or two institutions, with little option but to accept the products and services they were offered without going through a lot of upheaval. Now, they potentially will have maximum power to choose the financial products and services they want – from multiple institutions, and drive the outcomes they want, which is a great result for consumers.”
Open Banking has also meant that lenders have more access to more data than ever before. As a lender, does more data help you make better decisions or just make you feel better about the decisions you make?
“Intuitively, more data should help you make better decisions. Certainly, in our business, access to data is a critical factor in our decision-making process, not only from a risk management perspective, but also in terms of pricing risk and customer service and acquisition. But it also has to be the right data, and you have to use it in the right way. So, what’s really important is continually evaluating and reassessing the quality of the available data set, and also the decisions you’re making based on this, so you can strive to make better decisions all the time, which is where machine learning and artificial intelligence really come into play.”
How do lenders assess the quality of the data so they can be confident that they’re basing their decisions on good quality data?
“The quality of the data obviously depends on its source. But it also drives your decision making and the quality of the decisions you make as a lender. To this extent, evaluating outcomes is a key component of any analysis undertaken in terms of how you use data, to ensure you understand the performance of the decision model and the quality of those decisions. So, it’s a critical part of the process as it allows you to make better decisions over time. As your cohort of customers evolves, deterioration in the model is inevitable, which means it’s also important to remain constantly abreast of the latest credit data and outcomes to see how relevant and appropriate your models are over time.
“It’s also worth noting that while Australia has adopted Responsible Lending, borrowers are not subject to the same obligations. That means a borrower can lie blatantly in a loan application with little consequence. So, to really ensure the integrity of application data, we also need more done by the regulatory framework to compel require borrowers to act responsibly.”