Open Banking vs. Comprehensive Credit Reporting

Finance Oct 31, 2018

6 min read

There’s been talk for some time about Open Banking coming to Australia, but what is it and how does it impact you? And how does Comprehensive Credit Reporting tie in?

Open Banking

Open Banking, put simply, is the process of communicating your personal information and data from one banking organisation to another, with your permission. The practical implications of how Open Banking will operate from a technical standpoint is infinitely more complex and we won’t cover it in this article.

The type of data available about you is very detailed. This includes your financial habits, savings and spending, how you engage with the bank, interest rates, what products you have, what interest rates you are charged and where you spend your money.

This is the type of information will be shared across different lenders and providers who can then send offers to you for more competitive offerings.

The primary purpose of Open Banking is to add value to you as a consumer. Perhaps a bank or comparison site can offer you better interest rates on home loans, personal loans or savings accounts. Or products the algorithms deem would better suit you based on your spending and savings habits.

The idea is to encourage greater competition in the banking and finance space. And to encourage financial organisations to innovate and develop IT systems to organise and analyse the data they are receiving in a way that’s beneficial to their customers. Open Banking is just the first step, the government also intends to initiate data sharing for energy companies and telecommunications too.

Key take away: Open Banking is designed to benefit you.


Comprehensive Credit Reporting

Comprehensive Credit Reporting is data gathered about you for lenders and credit providers to utilise when assessing your application for credit. As of July 1st, 2018 Comprehensive Credit Reporting is live and in use by the lenders, though all the lenders have until July 2019 to provide the data to the credit agencies.

This data is not designed to get you a better deal (although it may have that added benefit down the track, we’ll talk about that in just a minute).

Banks, lenders and suppliers have the ability to report a greater amount of information about your repayments/payments than ever before. This includes not only whether you have defaulted on a payment, but what debt you have and whether you pay it on time.

You can access this information by getting a copy of your credit report. You can’t opt out of comprehensive credit reporting.

The primary purpose of comprehensive credit reporting is to provide a greater amount of information to lenders and credit providers to enable them to make more informed decisions when considering lending to you.

If you’re great with repayments and have a good track record when it comes to managing debt, then there’s a good chance you’ll find it easier to get credit if you need it down the track (and maybe even get yourself a better interest rate).

On the other hand, if you haven’t been making payments on time or keeping up your end of the debt bargain, you may find it more difficult to get a loan down the track or end up with a higher interest rate.

In Australia, credit reporting is managed by credit reporting agencies and you can request a free copy of your report once a year.

Key take away: Comprehensive Credit Reporting is designed to provide more information to lenders about your financial behaviour

Both of these initiatives are aimed at using data currently being collected about you and making use of it.