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What is open banking and what does it mean for you come July 1?

What is open banking and what does it mean for you come July 1?

Mark July 1 in your calendar, as it’s looking to be a big day in terms of changes to your finances.

Australians are going to have greater control of their personal finance data, which allows customers the ability to switch lenders and get a better deal on your loans.

As it’s currently difficult to access your own information and shop around for better deals, the new banking laws aim to make it easier to shop around.

The current difficulty is due to banks not sharing your data with rival lenders. Open banking is the new proposed solution to this, which gives borrowers more information to make a better decision if they opt into the system.

Customers will also have more power at the negotiating table when applying for a loan, according to UNSW competition law specialist Professor Deborah Healey. She told news.com.au:

“Banks and lenders will have more accurate data on which to assess risk in relation to borrowing by that particular consumer,” Prof Healey explained.

“Because the system will become more competitive, many consumers should be able to negotiate a better deal involving options more suited to them in particular, because the information will show that they are a good or reasonable financial risk.”

With Australians being loyal to their financial providers, the revelations of misconduct within the banking sector due to the banking royal commission has eroded trust.

Finder chief executive Fred Schebesta has explained that due to 40 per cent of adults still being with the same bank they had as a child, the result is seven million Australians aren’t chasing the opportunity to explore better rates on bank accounts, credit cards and loans.

“If you opt in to share your data, businesses may gain a deeper insight into your transaction behaviour which may help you save money on your credit card or transaction account,” Mr Schebesta said.

“If you do share your data, make sure the business is reputable and one that you trust, and make sure you take note of the expiry date of your consent as you may need to regularly opt in for consent under the proposed guidelines.”

However, there are concerns that open banking will lead to benefiting those who are financially privileged while those are in financial hardship will be vulnerable to payday lenders.

The Financial Rights Legal Centre explained their point of view to the Senate Economics Legislation Committee warning about open banking and the increase in economic inequality.

“People who are experiencing financial hardship are very valuable to a lot of fringe lenders and other services who may take advantage of the fact that they are desperate to get anything,” the centre’s open banking expert Drew Macrae told news.com.au.

“Access to data and continuous monitoring are likely to lead to predatory practices, for example by payday lenders.”

Professor Healey agrees.

“There is a possibility that vulnerable consumers may pay more for loans because their financial circumstances may be judged on the basis of their current financial circumstances,” she said.