As open banking moves into Phase 2 this month, fintech Frollo and NextGen.Net have jointly published the first industry report on the new system, illuminating where the regime is headed and where the most immediate challenges and opportunities for mortgage brokers lie.
At the moment, the most significant hurdle for the industry to get over seems to be the lack of clarity around what it takes to become involved in open banking in terms of costs and return on investment, explained Frollo CEO and founder Gareth Gumbley.
“We know that change at this scale doesn’t happen at the flick of a switch, but as it stands there is too much ambiguity. The rules aren’t clear and for many it's perceived as a mountain too big to climb," he said.
The State of Open Banking in Australia report found organisations’ commitment to investing in the new system is varied, with 64% of banks and 54.6% of technology providers indicating they will spend more than $500,000 and 54.2% of fintechs expecting to spend between $100,000 and $500,000 on open banking in the next 12 months.
According to NextGen.Net chief customer officer, Tony Carn, this is of crucial importance as open banking will likely become a matter of survival of the fittest for those in the mortgage industry.
“The opportunity to streamline credit decisions by using CDR data to reduce unnecessary friction in the application process and speed up the decision process is a game changer for the sector,” he said.
“Use cases, such as income, expense and liability verification, will also help to reduce the costs and risks involved on the lender side, making it a logical and popular use case amongst banks, lenders, fintechs, and brokers and aggregators alike.
“It also presents a new way for how customers can be sourced and nurtured through their life cycle. It’s not just the one moment in time (such as getting a home loan), but the opportunities to get customers ‘fit for finance’ before and after," Carn added.
Brokers were among the respondents who were the least familiar with open banking, with many stating they have no intention of using the data made available in the new system; however, when presented with ways open banking could transform their approach, such as with borrower income and expense verification and the digitising of the loan application process, most brokers rated these as highly valuable for their business.
This “high value/low usage intent broker paradox” suggests brokers value the practical applications of open banking, but don’t necessarily see themselves dealing with the data, said Carn.
As such, the report emphasised the need to continue educating brokers on the applications of CDR, while also acknowledging that the current broker business model sees aggregators – who made it clear they do intend to use and invest in CDR – acting as the key providers of technology to the sector.
"Once Accredited Data Recipients (ADR) like Frollo and ourselves build the tools, [brokers] will understand,” Carn continued.
“At the moment, we're all at the point of now being able to directly share and access consumer banking data with ADRs - and that's great. But it's what brokers and aggregators can do with that data that will really bring to life the promise and significance of CDR for the broker sector, and that's what I'm most excited about.”
