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What is open banking? Here are five things you need to know

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The arrival of open banking - which allows financial institutions to share customer data - should give households the ability to track down better deals and products. But it also raises concerns about the privacy and security of personal information.

Here are five "home truths" to help set your mind at ease:

1. You'll have to wait

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Let's say you're a customer with Bank A and you're considering switching your home loan to Bank B. Bank B needs to be an accredited data recipient (ADR) to access your personal data under the open banking regime.

About 50 applications have been lodged to become an ADR and at the time of writing only two had been approved. Based on the federal government's timetable on when banks and their customers can share data with other finance institutions, we are still very much in the early days of open banking.

2. You can say no

Even if Bank B is an ADR, you don't have to give it permission to access your data. It's completely up to you. However, if you don't share your data, there may be banking products and services that won't be available to you.

Also, you might miss out on a better price (for example, a lower interest rate). Paul Wiebusch, partner and open data leader at Deloitte, says: "It would be interesting to see what new propositions might emerge as we see greater sharing of data."

3. You can revoke access at any time

Wiebusch says that one of the misconceptions about open banking is that once you've given permission to a data holder to share your data, you can't change your mind. This is not true. The federal government and banking industry are designing a consumer dashboard that will help people keep track of the data they share and with which companies. In this dashboard, you can nominate for how long you want to share your data.

Twelve months seems to be popular with customers surveyed by the Data Standards Body, but there is a disclosure on the page that states you can revoke access at any time, including within your pre-agreed consent period. The overarching principle here is that you own your banking data and no finance organisation can get hold of it or store it for an indefinite period without your permission.

4. It's safer than "screen scraping"

There's already a way you can avoid the admin hassles that come with applying for a credit card or a personal loan. It's called screen scraping, and you can provide a third party with access to your data by giving it the log-in details to your account.

By contrast, open banking doesn't require you to divulge details such as log-in names and passwords. This makes it a more secure way of sharing information and makes the transaction less exposed to fraudulent activity.

5. It's more than just banking

The consumer data right (CDR) legislation is intended to be an economy-wide data sharing right, says Wiebusch. "Banking is just the first sector to which it applies. The energy sector has been designated and work is under way on the rules and the data sets that will apply for this sector."

In short, data sharing will increasingly become part of the way we choose our service providers and allow us to discover the products that are better suited to our needs and budget. Not all the nitty-gritty details have been ironed out, so it pays to be vigilant. But broadly speaking, open banking is a good thing and will work in the customer's favour.

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Michelle Baltazar is editor-in-chief of Money magazine and an award-winning journalist, editor and publisher. She has worked at media companies including BRW, Shares Magazine (London) and industry newspaper Financial Standard, and has written about superannuation, wealth management, investment technology and financial advice.
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