Transactional Data: The new battleground

Andrew Tierney, risk and compliance consultant at Balance Risk Management, discusses the potential impacts of the Consumer Data Right legislation on the industry, and how to navigate the coming changes

Governments have always tried to collect data on their constituents to record taxable income, plan better facilities and manage their empires.

Rome left the tax collection to tax farmers to assess, collect and provide the manpower necessary to manage this huge undertaking. But as corruption ran riot, it ultimately played a part in the empire’s demise.

But not until recently has there been such an expanse of readily available data. Now, a new raft of data is being released into the banking and fi nancial ecosystem.

This large data collection pool falls under the Consumer Data Right (CDR) legislation. The ACCC is the lead CDR regulator and its new roles include:

• Creating and managing CDR rules
• Identification and accreditation of data recipients
• Establishing and maintaining a register of accredited persons
• Monitoring compliance and taking enforcement action where necessary
• Recommending future sectors to which the CDR should apply
• Communicating with and educating consumers and other stakeholders about their rights and obligations under the CDR

The Australian government has said the CDR will give consumers greater access to and control over their data, improve their ability to compare and switch between products and services, and encourage competition between service providers – leading not only to better prices for customers but also more innovative products and services. But will it?

Potential impacts of CDR

Open transaction data is a change that happens once in a generation. The last time there was a major industry change was back in 1988 with the Privacy Act, which sparked a huge adjustment for companies.

I expect the CDR, or open banking, to do much the same.

Damir Cuca, the CEO and founder of Basiq – an open banking platform backed by NAB Ventures, Salesforce Ventures and Westpac’s Reinventure – said he saw the revised legislation as confirmation that open transaction data could assist in solving “the responsible lending conundrum”.

“[The] revised RG209 shouts technology – it firmly details an automated approach, even imagining a digital data aggregator as one way to solve the problem,” Cuca said.

Indeed, open data can certainly be useful for the known elements of the income/expenditure equation. Once the transaction data is obtained, then “patterns of income” can be understood, Cuca says.

Suffice to say that recurring debts will also be understood, and it provides the ability to see hardship as it happens.

What will be interesting to see will be the uptake of the CDR in its entirety. Not only do institutions have to conform to the regulation, they must revel in it. Grudging compliance will only hold them back. There is potential for adverse selection of those that do not take up the data.

Transaction data provides an up-to-the-minute view of a person’s income and expenditure. It can also be used to determine risk and tendencies over a long time frame. As Cuca said, “the sooner you engage with the data, the sooner you become master of it”.

I can certainly see how open data, easily transportable, can provide the basis for switching products and verifying income and expenses. Innovators could potentially use open data for enhanced products, quicker service and risk pricing for consumers. As a manager of risk and data, I truly believe this openness of data can benefit the industry and the consumer. But to what extent will be determined by the effort put in by the banking industry.

Brokers are eagerly awaiting the next step in the journey. Many can see the potential positive impact of automated data and a more personalised service that can only benefi t the customer. It will make transactions quicker, easier and more transparent.

Should CDR be used properly, it will benefit the cost of finance, lead to quicker decisions and reduce paperwork.

Imagine a time when a broker can be confi dent that their client can afford a loan, the product is right for their fi nancial position, and there will be no back and forth in proving this. How would this affect the transaction, the relationship between client and broker, broker and funder, funder and client? I see this as a triple win.

I’m sure those in the financial services ranks are thinking about this right now. To be in the forefront will take a different view on income/expense verification and the way to determine serviceability.

My thoughts on this are that out-of-the-box thinking can truly provide an innovative view, an analytical approach and a risk-managed endgame.

Andrew Tierney
Risk and compliance consultant,
Balance Risk Management