After the success of our 2021 series, BDO is pleased to be continuing the Fintech Fridays webinar series in 2022. Join BDO Global Fintech Leader, Tim Aman, as he hosts industry experts for our bi-monthly webinar series covering the diverse subsectors of the fintech space, including blockchain, capital markets, customer acquisition, and more.
In the second session of the year, Tim talks to Jill Berry CEO and Co-Founder of Accredited Data Recipient startup, Adatree, and Mauricio Benitez, Founder of Fintegram on what’s next for open banking.
First to market: Adatree
Adatree is an Australian technology company removing the barriers to entry to Australia’s data ecosystem, enabling organisations to access and leverage consented data and allowing companies to build new, innovative, data-driven solutions.
In January 2022, Adatree became the first company designated as a principal under Consumer Data Right (CDR) rules. Allowing them to act on behalf of other companies and access data without the client company going through the CDR accreditation process. Adatree was also the first to use CDR for non-financial use by developing a covid hotspot service that mates transaction data with covid hotspots.
Since 2019, Adatree has been working with fintechs, banks, and lenders to access and leverage banking data in real-time.
Changing the rules of the lending game: Fintegram
Fintegram is a financial education platform connecting the main actors of the ecosystem in an open, collaborative, transparent, and professional space. The platform allows information and access to financial services to be shared with all participants in the digital economy.
Fintegram promotes financial literacy and inclusion for businesses through the application of credit models, which are leveraged on big data and Blockchain technology. Through their gamification model and platform, they aim to change the rules of the lending game and empower SMEs.
Clients of Fintegram join to know more about debt management, how banks score a business’s financial health, tools to carry out digital transformations and access to finance.
A global perspective
Currently, 87% of countries have some form of an open application program interface. Open banking originated in Europe starting in 2015, with the implementation of regulations beginning in 2017. Following Europe’s implementation, there was the Australian CDR, Hong Kong Monetary Authority HKMA API framework, Singapore’s API playbook, and Brazil’s Open banking project.
A few countries are operating on a market-driven approach, with regulators supporting open banking but not enforcing it, including India, Japan, Singapore, South Korea, China, and Canada. New Zealand is one of the last countries to take on open banking, only just starting the investigation process.
Brazil is the leader of open banking in Latin America (LATAM) and is currently in its final ‘open finance’ phase. LATAM banks have traditionally conducted their proceedings in a very manual style, and open banking will make their processes a lot more efficient, reducing time, complexity, and costs. The adoption of open banking will also make banking more accessible to roughly one-third of the LATAM population who are unbanked or underbanked.
Other LATAM countries are starting the open banking process. Mexico has open banking initiatives, however, haven’t defined an implementation deadline. Argentina and Peru lack regulation and are closely watching other LATAM countries roll out first before jumping into the process. While in Chile, a bill outlining a planned open banking framework was passed in August 2021.
What’s next for open banking?
Open banking is a developing trend in financial services, directly threatening traditional banks by allowing third parties to build applications and services that enable faster and more convenient payments, greater visibility into personal finances, and net new services.
CDR rules are now extended to allow companies to act on behalf of consumers in certain situations like making payments, opening accounts, and applying for loans. Australia’s CDR rules are being brought into line with the UK by offering a third-party payment initiation called PayTo.
PayTo will allow your direct debits to seamlessly change with you if you change banks and eliminates the need for a service like PayPal or Bpay to act as a facilitator, by directly asking a consumer's bank for payment, with the consumer's approval.
In the future, open banking could be used for automated mortgage switching. The recent CDR change will enable a more automated process where you can not only compare mortages between banks via a single application, it could also be possible to switch mortgages on the spot. CDR will also be extended to the energy sector in October 2022.
Open banking is ramping up in Australia, with the Australian Competition and Consumer Commission actively warning banks who have not met their open banking obligations, they risk facing enforcement action.
Future of digital identity
The Australian government is looking to expand digital identity to include non-government organisations with the Trust Digital Identity Bill (2021).
The Digital Identity Program helps Australians verify their identity safely and securely by accessing government and other services online, removing the need for individuals to visit a shopfront with their identity documents. The Trusted Digital Identity Framework (TDIF) outlines all providers and services' strict rules and standards.
Eftopos has received the first private-sector exchange accreditation under the TDIF framework for their identity brokerage service ConnectID. ConnectID offers access, through multiple digital identity providers, including Australia Post and Yoti, to a potential network of Australian businesses and digital services.
New data users and obtaining access to CDR data
Fintechs are reporting it can cost up to AUD $100 k to receive a full CDR accreditation. However, companies like Adatree can help reduce that cost - businesses can now apply for sponsor-level CDR accreditation. Allowing the business to receive data from an accredited CDR firm (acting as a licensor) rather than applying for its own license at the full cost will enable a significant cost reduction, and in turn, allow smaller players to obtain access to data quicker.
Neobanks
The Australian Prudential Regulation Authority recently issued stricter standards for neobanks seeking authorised deposit-taking institution licenses following the collapse of the neobank, Xinja, in January 2021.
The stricter standards will make it less likely for neobanks to run out of money and, if they do, to have a plan in place to return customers’ funds. They now must have an income-generating asset like a loan product rather than just taking deposits.
Xinja was operating on a business model based on anticipated funds that they were not in receipt of. They had not yet launched any income-generating products to be a profitable business The rise and fall of Xinja has proven to be a crucial case study for the neobank industry worldwide.
As open banking progresses, Neobanks will continue developing, capturing new niches, and differentiating themselves. If you are interested in learning more about open banking, register for our Fintech Fridays Open Banking webinar.
At BDO in Australia, we understand the needs of fintech businesses of all shapes and sizes. Our local teams offer specialist advice for fintechs looking to expand their operations internationally, offering the unique advantage of cross-border solutions with a presence in 167 countries and territories, and 1,728 offices around the world. Contact us to find out how BDO can help you to scale your business.