Big brother banking has come to Australia.
All our large so-called authorised deposit-taking institutions have since June 30 been required to report most of your credit repayment data to credit bureaux, to feed into your now more accurate US-style credit score.
But rather than “accurate”, some may say invasive.
What’s more, as of July 1, the Big Four banks (Westpac, CBA, NAB, ANZ) are also allowed to share identification, account and transactional data from your credit card and savings accounts under “open banking”.
Let me be clear: you have to give express permission for them to give this information to another financial services provider.
Why would you do such a thing?
The theory is that it will make it easier to ditch and switch your uncompetitive financial accounts and products.
The reality is that we will now swiftly see a move to the “risk-based” pricing they have in the US.
This means if you’re a less-attractive customer, you could well be forced to pay higher interest rates on your debts.
From November, this enhanced sharing option will be available from personal loans and mortgages held with the Big Four. For now, it’s from credit and debit cards, and transactional and savings accounts.
The Consumer Data Rights legislation that allows this new protocol will likely also roll out to energy and telecommunications providers at some point.
How open banking works
The whole idea of open banking is to increase competition between the major outfits and smaller institutions.
This is because it’s supposed to get rid of the big impediment to most people switching to the better deals – the sheer effort of finding all your information, such as all your transaction data, to prove you’re a good financial bet.
As I said, you need to authorise this sharing by simply requesting that the relevant institutions do it. This means, in theory, that they will do the heavy lifting for you if you apply for a product elsewhere.
But for now, it’s only our major four banks that have become accredited for open banking with the Australian Competition and Consumer Commission, so that can receive your information.
Smaller banks will sign up over time, as well as credit bureaux and product comparison websites.
There are, naturally, strict rules.
So where does the danger come in?
What is known as comprehensive credit reporting – the system that allows that US-style credit score – already shows your debt repayment prowess.
Open banking goes even further than this, revealing if you’ve been going overdrawn or, say, frittering too much money on UberEats or entertainment.
Together, this far-more-complete snapshot of your money-self might depict a potential problem customer. And that’s what would see you slugged with higher interest rates on credit and loans.
Of course, it could also paint a picture of a money model citizen… who could be granted cheaper rates.
These differential rates are far more likely to happen with fintechs – providers that essentially operate online.
True, ahead of this inevitable rates-on-risk pricing, open banking could mean you stand to earn more on your savings and pay less on your debts.
But, if need be, now’s the time to pull up your financial socks.