Green lights for open banking

The Commerce Commission is set to make two big announcements this week, which are expected to result in a big leap forward for open banking. 
There’s also a piece of legislation going through parliamentary processes at the moment that will lay the foundation for open banking to take off in New Zealand. 
Today on The Detail we try to cut through the jargon to explain what it is, how it will work, and who will benefit most. 
To some, it is a new and scary concept – allowing third parties to have access to your banking details – but internationally it’s been around for nearly a decade, and we’re actually already doing it. The problem is, the way we’re currently doing it is not completely secure, and banks hate it. 
BusinessDesk technology editor Ben Moore says historically our open banking has been done via a process called ‘screen scraping’. If you’ve ever used POLi payments, for example, to pay a road toll on the NZTA website, you’ve done that. 
“You give a company your credentials to your bank account, they log into your bank account with some software, it goes in, sees what it needs to, does what it needs to, and then logs out.
“It’s not the most secure way of doing things,” [because you are giving them your banking password], “and banks don’t really like it very much. They say it’s a breach of their terms and services.
“It’s about giving consumers back the right to share their own data that’s held within organisations like banks.”  
At the moment that power is in the hands of those banks, so it’s a fundamental change in the concept of who holds your data. 
So how does it work?
The big banks have had to spend a great deal of money to upgrade their legacy security systems so that they can create what Moore calls a “bolt-on tunnel connector”, or bridge, which is called an Application Programming Interface (API) – an interface between computer programmes. 
That’s so data can be shared. 
New legislation has been designed to ensure the API is highly secure and standardised across all the banks. 
That enables third parties, usually fintec companies, to offer their services, whether they be mortgage broking or budgeting services, or online payment services. They can’t just reach in and grab your information – you have to give them permission. 
If you’re paying for something online for example, you can confirm you want to use open banking and you’ll be redirected to your banking website or app. You approve the payment and that’s it. 
Eventually this will also be used for electricity products, insurance products and more. 
Ease of comparison between institutions is expected to drive competition and keep prices down. 
“It’s been really tough to get the banks along … because they are big and old and traditional,” says Moore. 
“[The software] costs money to develop, and time and resource, and also they will allow other companies to get access to what has traditionally been their data.” 
The legislation going through Parliament at the moment which will guide all this is the Consumer and Product Data Bill. It has the support of all parties and will set the rules for the API providers [the banks] and the third parties. It’s passed its first reading. 
Today the Commerce Commission’s broad inquiry into banking competition comes out, and open banking is a small part of that because it is expected to improve competition. 
And on Thursday, August 22 it’s expected to confirm that Payments NZ has clearance to be the body that sets standards for open banking, and what the criteria are for that. 
Listen to the podcast to find out why it’s not altogether a bad thing that New Zealand is behind on this issue, and how Australia has made a mess of it. 
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