Why SMEs should care about the Consumer Data Right

Data seems to hold more power and influence than ever. Much of that data is held by big institutions, whether that would be big tech, the big banks or the major utilities. Small businesses needing financing, a decent IT setup or an affordable electricity plan would be at the mercy of those institutions in order to keep operating, thus forcing them into inefficient price arrangements in order to keep operating. 

In response, the federal government sought to make that data held by the big institutional gatekeepers more transparent to competitors under what is now known as the Consumer Data Right (CDR). Since 1 July 2020, consumer data relating to credit and debit cards, deposit accounts and transaction account was made available. This will be closely followed by mortgage and personal loan data being able to be shared from 1 November 2020. The government has also formally applied the CDR to the energy sector.

Small businesses will be set to benefit as competitors will be motivated to provide them better deals on their finances, thus creating savings on their operating costs and a positive benefit to their cash flow. Before the pandemic, businesses would’ve seen the CDR as a growth opportunity. Now it’s a necessity to help them stay afloat.

The open banking era

On the finance front, the CDR has heralded in the era of open banking, where banks are required to be transparent with their data to all other competitors. For small businesses struggling with finance, they will be more empowered to find the best possible deals on credit cards, savings accounts and other deposit products.

Since 1 July, Australia’s four major banks have opened up their data. Other banks will be expected to follow over the next 12 months. On top of that, fintechs are also seeking to become accredited data recipients, with many providers currently in the process of being accredited by the Australian Competition and Consumer Commission, who will be the main regulator overseeing the implementation of the CDR.

Australian Banking Association chief executive Anna Bligh says businesses will be able to give permission to accredited third parties to access their banking data while they search for a better deal on banking products.

“This sharing of data is a watershed moment for competition in the banking industry and, in time, will enable every Australian to use their data for their own benefit,” Ms Bligh says.

“Customers can be assured that they will always be in control of how and when they share their data.”

Founder and chief executive of small business lender Lumi, Yanir Yakutiel, says his firm is able to make better decisions on who to lend to as a result of open banking, leading to fewer bad loans.

While he says open banking couldn’t have come soon enough for the lending industry, Mr Yakutiel adds the coronavirus pandemic has shown that the banks are too slow at distributing funds to small businesses in particular.

“It would have been hugely beneficial to have this data made available at the start of the pandemic,” he says.

Unfortunately for businesses wanting to bank away from the big four, open banking doesn’t necessarily mean new entrants can immediately compete with the likes of ANZ, CBA, NAB and Westpac – at least not yet. Mr Yakutiel says policy changes at the federal level are needed before a level playing field is truly established.

“First is franking credits. Open banking data being utilised will help somewhat, but the franking credit system heavily incentivises investment into equities,” he says. “As a result, the Australian debt market is much weaker than it otherwise would be. This is now, regrettably, a heavily politicised policy, so change here will be slower than anyone in the industry would like.”

The other issue, according to Mr Yakutiel, is the issue of data ownership. While the CDR will enable greater transparency of data, questions remain as to who actually owns it.

“While we can access more data now than ever, ultimately it still belongs to the bank. This is a curious state of affairs, as the business customers themselves are generating the data, the bank is merely collating and storing it,” he explains.

“Creating a policy where businesses own their data, and can share it how and when they please, is the only real method of making sure bigger competitors don’t leverage data-driven advantages against smaller rivals, killing innovators and challenges to their lucrative status quo before they get off the ground."

Power over your electricity

The federal government has also registered a legislative instrument to bring the energy sector into the CDR regime. On top of finance, businesses will be able to access details on their National Electricity Market electricity connections (including solar generation or battery storage), energy consumption, charging and billing history, and available products.

The initiative will be run by the Australian Energy Market Operator (AEMO) alongside the other regulatory bodies involved in the CDR – the Australian Competition and Consumer Commission, the Office of the Australian Information Commissioner and the Data Standards Body.

The AEMO is expecting the CDR to take effect in the energy sector in 2021. However, this will likely be dependent on how the CDR rules are developed for the sector, as well as how the Data Standards Body develops the data and technical standards.