Business

What is open banking and how does it work?

Joining Breakfast this morning, Simplicity founder Sam Stubbs discussed the global adoption of open banking over the past nine years, highlighting its absence in Aotearoa until now.

Stubbs explained that open banking enables banks to access customer data upon request without retaining it. This system streamlines processes like applying for mortgages, switching banks, and making payments, making them faster and more secure.

Currently, mortgage applicants must individually apply at each bank. However, with open banking, Stubbs noted that one could receive multiple quotes from different banks within minutes. He cited Australia as an example, where the same banks operating in New Zealand can offer mortgage quotes in just 10 minutes.

“Essentially, you are sharing your data. Banks can view, but not retain or misuse, your data. This allows them to price their services competitively,” Stubbs said. “Ultimately, it provides more choices and lowers prices.”

More Secure Online Shopping

In addition to quicker mortgage or loan quotes, Stubbs emphasized the enhanced security in online shopping.

“You can be confident that your data won’t be stolen or hacked during transactions, ensuring a very secure and safe experience,” he said.

Under open banking, customer data would be centralized, regulated, and monitored.

Increased Competition Between Banks

Stubbs pointed out that open banking would empower customers with more options on where to bank. By allowing customers to share their data with any bank, switching and comparing offers would become much easier, similar to how people switch and compare internet or power providers.

Why is New Zealand Late to Adopt Open Banking?

Addressing why Aotearoa lagged in adopting open banking, Stubbs remarked, “Turkeys don’t vote for Christmas.” He explained that banks have delayed the process, but the current government has intervened decisively, unlike its predecessors who merely promised reforms.

“This Government has now committed to implementing open banking, as has been done worldwide. Banks naturally resist self-regulation that might reduce their profits,” Stubbs stated.

When Will Open Banking Start?

Stubbs indicated that the rollout of open banking would be gradual, akin to adding extensions to a house. The current legislation serves as the foundation for this transition.

“Soon, you’ll be able to securely share your data with any entity that needs it. Imagine getting mortgage quotes or shopping for term deposits quickly and efficiently,” he said.

In summary, Stubbs likened the shift to open banking to the evolution from using Eftpos cards to tap-and-go methods like Apple Pay.

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