What is open banking and how does it work?

Open banking is set to make banking a whole lot faster and simpler – but what is it and how does it work?

Joining Breakfast this morning, Simplicity founder Sam Stubbs explained open banking has been in place around the world for almost nine years, just not in Aotearoa.

He said open banking allowed banks to view customer data on request without keeping it — making applying for mortgages, changing banks or making payments after hours a lot faster and more secure.

Stubbs said right now, if someone wished to apply for a mortgage, they would have to go to each bank and fill out individual application forms.

But, with open banking, Stubbs said someone applying for a mortgage could do so with any bank and for example, recieve 10 quotes in 10 minutes.

He said, in Australia, the same banks which offered mortgages here were able to do so within the 10 minute timeframe.

“Basically you are sharing your data. [The banks] are looking at your data, they don’t have your data, they can’t keep it, they can’t misuse it, they can just look at it and that allows them to price their services.

“Ultimately, it allows more choice and lower prices.”

Along with faster quotes for mortgages or loans, Stubbs said online shopping also became much more secure.

“You know that when you’re actually paying for something, you know your data isn’t going to be stolen, you know you’re not going to be hacked. It keeps it very secure and very safe.”

Stubbs added under open banking, customer data would be available in one place, which would be policed and regulated.

“Open banking has been in place around the world for up to nine years now, so it has been really well tested.”

Stubbs said open banking would ultimately lead to the customer having a lot more power with where they chose to bank.

He explained this was possible because the customer would be able to send their data to any bank, making switching or viewing possible deals much faster – similar to switching and comparing rates between internet and power companies.

On why Aotearoa hadn’t adopted open banking sooner, Stubbs said “turkeys don’t vote for Christmas”.

“[The banks] have played a delaying game, and finally the Government has stepped in. It is the first government to have done it. The previous two have promised it but haven’t delivered it.

“This Government has now said ‘okay, we’re going to bring it in, and we’re going to force it in'. That’s what has happened around the world. You can’t expect the banks to regulate their own environment because, of course, they want to make more money from us.”

Stubbs suggested open banking would roll out over time, and be built on, like adding extensions to a house.

Right now, Stubbs said the first piece of legislation acted as the foundation for open banking.

“Most importantly, pretty soon, you’re going to be able to give your data in a secure way to anybody who wants to see it. Just imagine, for example, getting your mortgage priced shopping for your term deposits — it will be a lot faster.”

Put simply, Stubbs said the transition to open banking would be like the transition from using cards for Eftpos to tap-and-go methods such as Apple Pay.