Open Banking and Its Impact on Mortgage Processing Costs
The rise of open banking in Australia has brought about significant changes in the banking sector, particularly in mortgage processing. Tony Carn, NextGen’s Chief Customer Officer, recently spoke on a panel at the Fintech Data Horizons Summit in Sydney, shedding light on the future of open banking and how it could potentially reduce bank mortgage processing costs.
Tony Carn, Chief Customer Officer, NextGen
The Potential of Open Banking
Open banking has been in operation since 1 July 2020, designating banks as “data holders”. This requires banks to make consented consumer information, such as bank balances and transactions, available to “data recipients” via secure APIs. Carn, speaking alongside Christopher Taylor, Chief of Policy at the Australian Banking Association, noted that the recurring theme around open banking seems to be costs.
According to the Richards Review into open banking costs for 2023-24, banks had borne $2 billion of compliance costs in total. However, Carn offered a different perspective on the value of open banking. He highlighted that bank mortgage processing costs currently stand at $5 billion per annum, a figure he believes is ripe for reduction through the use of the Consumer Data Right (CDR).
NextGen’s Role in Open Banking
NextGen’s ApplyOnline application centre, which processes upwards of 1 million loan applications a year (comprising 75% of all new mortgage applications in Australia), aims to expedite loan approvals by digitalising the end-to-end lending process. In 2020, NextGen acquired CDR accredited data recipient Frollo and integrated open banking into its ApplyOnline platform. This allows brokers to access consumer data as trusted advisers, helping to streamline the mortgage application process.
Carn revealed that there are 80,000 open banking-enabled home loan applications a year going through ApplyOnline. This number has doubled in a year, and he anticipates it will double again every quarter in the future.
Benefits and Challenges of Open Banking
Despite the ongoing market fragmentation across the major aggregators, which Carn cited as a factor hindering broker access to open banking, significant strides have been made. Connective and REA Group’s Mortgage Choice have been the most successful at integrating open banking workflows for brokers, with Connective leading in terms of volume. In March, AFG announced its partnership with Stryd for open banking.
Carn sees numerous benefits in using open banking and digital identity in the mortgage market. These include the ability to obtain data directly from a trusted source, having it available in real-time, and being able to analyse it with artificial intelligence. “There is a faster time to ‘yes’ with open banking and digital identity,” Carn stated.
While Carn endorsed the idea of banning screen scraping and extending CDR to include Australian Taxation Office (ATO) data sets to help lenders verify a borrower’s income, he urged caution. “We need to be careful jumping horses when we haven’t mastered the one we’re already riding,” he warned, underlining the importance of fully understanding and implementing existing technologies before moving on to new ones.
As the world of open banking continues to evolve, it’s clear that its potential to revolutionise the mortgage processing landscape is significant. By reducing costs and streamlining processes, open banking could transform the way consumers and banks interact, leading to a more efficient and customer-centric banking experience.
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