Australia’s Consumer Data Right regime is making it easy for customers to compare and switch between products and services right across the economy. Potential risk and opportunity this high needs board-level attention.
The Consumer Data Right (CDR) is an economy-wide regime designed to empower consumers with the right to access and share their data. Introduced by the Australian government in 2017, the CDR will fundamentally change the business landscape and digitise the national economy in ways that have perhaps not yet been fully appreciated nor realised. Data will become an even more valuable commodity as the CDR landscape matures. Readiness is an important part of the story, but competitiveness is the key.
The CDR is designed to bolster competition in the quickest and simplest way. Consumers will have more power and ability to shift service providers than ever before. Organisations that understand this and move quickly will be best placed to attract new customers and future-proof their competitiveness. Directors who understand the full risk and reward of CDR can ensure they fulfill their strategic guidance role on the board and protect shareholder interests.
The potential risk and opportunity of the CDR are so high that in many organisations it has been elevated to board level as a key strategic decision with the potential, if left unattended, to materially impact a company’s performance.
Directors not well acquainted with the CDR are advised to become so, for this economy-wide reform is being activated sector by sector, and is likely to impact upon a substantial number of businesses as it progressively rolls out. This has already begun with financial services, aka “open banking”. On 24 January, Treasury officially confirmed the CDR would be expanded to the telecommunications sector. The formal designation makes telecommunications the third sector to be covered by the CDR after banking and energy. Financial services minister Senator Jane Hume said the CDR would next expand to “open finance”, covering products beyond banking, including general insurance, superannuation, merchant acquiring and non-bank lending service providers.
While compliance is part of the journey, the real story lies in how CDR will drive competitiveness between organisations that move first to become accredited to receive valuable consumer data. The opportunities lie in all sectors, because any organisation can apply to be registered as an accredited data recipient (ADR). Under recent amendments to the Competition and Consumer (Consumer Data Right) Rules 2020, or CDR Rules, entities may now also gain access to CDR data via more accessible sponsorship and representative models, which are likely to accelerate the uptake of the CDR in coming years.
Australia’s approach to CDR differs from the UK, which focuses on open banking, and Canada, which is still in the consultation phase for open banking. In Australia, CDR has evolved from a reform that stimulates competition to an important foundation of the digital economy, creating the potential for new goods and innovative services. The innovation to include a broad scope of organisations that can become ADRs makes the reform world-leading.
Why this is important to boards
Australia’s sector-agnostic approach means there are much greater opportunities and risks. Organisations will be compelled to respond to their customers’ new rights and, as the CDR continues to expand, competition will inevitably increase. This will cause disruption for some. However, businesses that act quickly to innovate and disrupt the market will reap the benefits that come with being a first, or early, mover.
As the CDR expands across sectors, one consequence might be a rise in “life admin centres”. These are essentially applications from which consumers will be able to monitor and manage many of their products and services from a centralised portal — from banking and insurance to energy and healthcare.
Further change will come with the implementation of “action initiation”, as recently endorsed by the federal government in its December response to the Inquiry into Future Directions for the Consumer Data Right. This will allow ADRs to not only read data, but also use it to act on the consumer’s behalf, including initiating payments, updating details, managing products and closing/switching accounts. This will create an opportunity to “own the customer” like never before. Conversely, it also creates the risk of losing the customer. The known market will change with the entry of new, unexpected competitors, and there will be increasing competition between organisations to become the preferred life admin centre for consumers, before the market becomes saturated.
Making strategic decisions
Speed to market is essential if organisations are to be in the best position to benefit from CDR. Financial services, where implementation of the CDR is nearly complete, offers insight into the potential competitive changes. Banking customers can already transfer their CDR data — including their contact, transaction, account and product details — to any organisation that has registered as an ADR.
Soon, banks will be also able to initiate transactions and open new accounts on behalf of their customers. And they may also soon look after customers’ energy needs, opening new energy accounts and closing existing ones on the customers’ behalf. Similarly, insurance companies may decide to organise house and car loans, while financial institutions might offer insurance with their loans.
A pure play (publicly-traded company that focuses its efforts and resources on only one line of business) e-commerce platform such as an e-retailer, which is registered as an ADR, will be able to expand its products to include financial services and, given the sophistication of its online platforms, could potentially do so in one or two clicks, not 10. The possibilities to both grow with, but also get left behind by, the CDR are real and should be considered by directors as part of their digital strategy.
Getting up to speed
Understand where your organisation fits in the CDR landscape in terms of both compliance and future competitiveness. Reading the federal government response to the final report of the CDR Future Directions inquiry is a good start.
Determine whether your organisation is in a sector that has or might be designated as a data holder and what the ramifications of this are — financial services, energy and telecommunications are first, with more to come.
Ascertain whether your organisation has an opportunity to be a data recipient and how this would impact its future growth.
Explore how the move to CDR fits within your organisation’s digital strategy.
Review the regulatory regime and ensure your organisation has the appropriate systems in place to ensure compliance and understand the competitive risks and opportunities.
Consider both the cost and time it takes to make necessary upgrades to IT systems — and the impact on budgeting.
It’s advisable to act quickly, because CDR has commenced and will only accelerate in 2022 and beyond. There is no time to waste.
The Commonwealth Bank
The Commonwealth Bank has utilised CDR data sharing to enhance the capabilities of its digital banking via the CommBank App, now allowing customers to view accounts from other banks, such as NAB and Westpac, from one central location. As the CDR rolls out across other sectors, this feature could be extended to enable customers to manage data from not only other banks, but also other sectors such as energy and telecommunications. Once “action initiation” is implemented, the bank will also be able to authorise transactions on behalf of their customers.
This provides the opportunity for established companies such as CBA to provide additional services to its existing customer base through the creation of “life admin centres”, which extend beyond the provision of their own services. This will, in turn, improve consumer satisfaction and maintain customer loyalty as competition in this space grows.
Fintech Company Adatree
Fintech Company Adatree has recently leveraged CDR data to alert customers who have completed a transaction at a COVID-19 hotspot, acting as a personal contact tracer on the consumer’s behalf. This is one innovative example of how CDR data may be utilised to provide a richer customer experience. In this example, banking data is being used to provide a public health and safety benefit to the consumer.
Adatree notes on its website that this free service reflects its values that technology companies have an obligation to use “data for good” for society.
TrueLayer is a CDR-driven company, initially established in the UK and recently launched in Australia. It creates open banking infrastructure such as Data APIs (application programming interfaces) and partners with a number of fintech organisations, which utilise this infrastructure in digital banking, accounting and wealth management apps. Now that sponsorship and representative models have been launched under new CDR rules in Australia, entities not willing to go through the full accreditation process can use TrueLayer’s infrastructure to access CDR data.
This is an example of how involvement in CDR does not simply entail the direct relationship between the consumer and data holder or recipient, but also provides the potential for a range of intermediaries and the creation of partnerships between larger entities and emerging fintechs.
Potential future use
An example of a potential future use case was recently given by Minister for Superannuation, Financial Services and the Digital Economy Jane Hume, whereby CDR access to a broad range of datasets could enable a consumer to compile their consumption behaviour and banking data in order to create a bespoke “hyper-tailored” retirement product. Such a product would take into account both the savings and spending behaviour of the consumer so that it would be perfectly tailored to the individual.
This would assist consumers in gaining the most beneficial products and services available to them, and enable a way for businesses to provide more customised and competitive services.
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