The implementation of Open Banking presents a significant challenge and opportunity to shift current customer aversion to data sharing.
In the wake of the revelations of systemic misconduct that have emerged from the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, New Zealand Banks have been instructed to show that they have clean hands.
While customer confidence will be damaged, further challenges lie ahead: new banking research — The 2018 Unisys APAC Banking Insights survey reveals that banks across the region have considerable work to do if to help their customers accept and adopt to a rapidly changing banking environment built around sharing data in an era of open banking.
First, let’s deal with the elephant in the vault.
Rob Everett, chief executive of Financial Markets Authority, says that the FMA and the Reserve Bank of New Zealand have a basis for being confident that the issues identified by the Royal Commission are not replicated in New Zealand.
“We haven’t seen systemic evidence of conduct along the lines of what’s been seen in Australia,” he said. Nonetheless lights are being shone into hitherto hidden corners of the banking system, and the Reserve Bank and the FMA are asking New Zealand banks for assurances as to processes they have followed to check their practices against the findings of the Royal Commission.
Before the dust has begun to settle on the Royal Commission’s findings and their aftermath, the financial services industry on both sides of the Tasman and throughout the Asia Pacific region will face a watershed moment as a surge of new regulations looms.
New Zealand banks aim to move towards open banking on their own terms, avoiding government regulation.
For example, Payments NZ, the bank-owned retail payments body, is running an open banking pilot and plans to have standardised technology to facilitate open banking ready by the year end. It also plans to have written some standards around using this technology.
In contrast, the Australian Government's open banking report recommends enforcing open banking standards on the parents of NZ's ANZ, ASB, BNZ and Westpac from the commencement date, a year before all other Authorised Deposit-taking institutions.
The changes will place greater pressure on banks to be more responsive in the way they interact with their customers, which has implications for both the banks’ interfaces with customers and the way they engage with them
The report says three types of data should be required to be shared: customer-provided data, transaction data stored in a digital form for specific types of accounts held in Australia, and product data. And data should be transferred free of charge via application programming interfaces.
The Australian report also recommends that open banking be legislated with the Australian Competition and Consumer Commission (ACCC) its primary regulator. How those recommendations translate across the Tasman has yet to be determined, but it’s safe to say that the report is being read with interest by government agencies in New Zealand.
Meantime, New Zealand’s Privacy Bill has passed its first reading in parliament. Justice Minister Andrew Little said: “The purpose of the Bill is to promote and protect people's privacy and to give them confidence that their personal information is properly protected.” One of the key reforms in the Bill is a new requirement for agencies to report privacy breaches: any unauthorised access to, or disclosure, loss, or destruction of, personal information, including a ransomware attack. An agency that fails to disclose a data breach may be hit with fines of up to $10,000.
So where does this leave the banking sector? These regulations, coupled the introduction of new payments platforms and the emergence of new technologies like machine learning artificial intelligence and blockchain, are altering how people bank and what they expect from banking services in fundamental ways.
In particular the changes will place greater pressure on banks to be more responsive in the way they interact with their customers, which has implications for both the banks’ interfaces with customers and the way they engage with them.
Even as banks face greater scrutiny about their behind-the-scenes practices, the potent combination of customer expectations, innovative technology and ever-increasing regulation is driving them to reimagine their future from both a regulatory and competitive perspective. The one constant amidst all this change is the customer: the most important driver determining how banks prepare for this defining era in banking.
The 2018 Unisys APAC Banking Insights survey identifies changes in consumer attitudes towards banking across the region, looking at customer frustrations and exploring how customers feel about using automated online services to assess eligibility for home loans and credit cards and customer sentiment towards banks sharing their data with other non-bank entities.
While this survey does not contain New Zealand-specific insights, its findings can be generalised, as it follows on from a comparable 2016 Unisys survey which examined how customers engaged with their banks and explored their preferences and frustrations with processes and services. The ultimate aim of both surveys is to understand how customers are coping with the rate of change in their banking environment.
While Open Banking offers clear benefits to customers, the fear of the unknown is currently stopping them from embracing services that should enhance their financial control and visibility over their financial position.
The report revealed that for bank customers, seamless, personal and safe interactions with their financial services institution was at the core of a positive banking experience. The findings of the survey reveal that while there have been improvements in addressing customer frustrations, change can be difficult and that it may take time for consumers to willingly adopt advanced technology and accelerated innovation into their everyday banking routines.
Three key themes emerge from the 2018 Unisys APAC Banking Insights report:
- Win with customer experience: For customers, the end to end journey is critical and customers want a personalised and seamless experience at every stage. Banks can achieve this by looking at the customer experience from a holistic perspective and communicating across internal silos.
- Balance technology with humanity: Banks must balance the impact of integrating new technologies, such as AI and machine learning, into the customer banking experience while ensuring a human touch is still available in personalised, complex and high-value transactions.
- Perceptions of data privacy and protection are being challenged: The implementation of Open Banking presents a significant challenge and opportunity to shift current customer aversion to data sharing. Adhering to regulations, privacy standards and embedding strong security processes will be essential in redefining data sharing for financial services and building customer confidence.
The research findings suggest that to positively manage the disruption being experienced by customers within the banking environment, financial services institutions should ensure that customer expectations, attitudes and preferences are kept at the forefront of their digital evolution agendas.
Richard Parker is vice president financial services at Unisys, Asia Pacific.
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