A few weeks ago, Treasurer Josh Frydenberg finally announced that the government will start working on the expansion of the Customer Data Right (CDR) to financial services, which will effectively enable regulated Open Finance in Australia.
This is another step to keep the country in a leading group of nations providing a financially progressive ecosystem to citizens and businesses.
However, Open Finance needs to be designed for small businesses as well, ensuring that we seize this opportunity to remove the red tape that is still making financial and accounting operations a burden for them. Unfortunately, most early conversations on the topic have been focused on consumers’ benefits.
What is Open Finance?
Open Finance will let consumers and businesses easily access and share their data from diverse financial services such as superannuation, insurance, or non-bank loans, as well as automatically syncing data between the different business tools they use, like an eCommerce platform or financial forecasting software. This can bring both immense time savings and help them find better deals. For example, a business can share data from its existing insurance on physical assets with other insurance providers to check if they could make a better offer, without having to actually extract and share the data manually. Thanks to integrations between financial systems, sharing and syncing data can be automated, but always with the company or consumer’s consent.
By enabling Open Finance, the government is hoping to help consumers and businesses become more financially smart and healthy, and encourage competition among providers. The CDR, which is the underlying regulatory framework to Open Finance, was created to enable Open Banking in Australia in July 2020, and it will also be extended to the utilities and telco sectors, in addition to financial services.
An additional layer of regulations for businesses
But for small businesses, Open Finance benefits go beyond just finding better deals. Accounting admin remains a real pain point for them, and Open Finance should be the opportunity to change this. Responding to a recent survey we conducted, nearly two-thirds of Australian small businesses said that time spent on accounting admin takes them away from growing their business, and three in four said that financial integrations make their business operations faster and more efficient.
Arguably, businesses have more to benefit from Open Finance than consumers do.
We have to make sure we don’t repeat the mistakes of other leading economies, who failed to consider the distinct requirements for SMEs when rolling out Open Finance, and focused almost exclusively on the benefits for consumers, or included rules that added complexity to the process for businesses.
When designing the framework for Australia, it is vital that we consider businesses as a distinct group, with separate consideration within the regulations, in order to truly liberate them from financial burden and open doors to growth.
At a top-level, Open Finance could optimise two key aspects:
- Facilitate integrations between small business financial systems, for example, those between payments and accounting systems. The lack of connectivity between systems means that SMEs are still having to extract, upload and rekey data manually too often, creating hours of extra work each week that doesn’t contribute to business growth.
- Increase competition and access for SMEs to financial services. When SMEs can freely share financial data from any system they use, we will see better rates for SMEs due to richer data available for underwriting as well as innovative new financial products based on alternative data like eCommerce or growth in subscriptions. Ultimately more SMEs will be able to access the capital they need to survive and thrive.
Although Open Banking has experienced a slow uptake at the beginning, the government did a good job at balancing regulations with both consumers’ and businesses’ needs, and we hope to strike the same balance with Open Finance. The Treasury will soon launch consultations with the industry to help define the framework’s design, and we hope to see more conversations focused on SMEs specifically.
SMEs are the fabric of our economy and have been on the front line of challenging economic conditions in a world in turmoil. More than ever, we need initiatives that make it easier for them to run their business and stay competitive and agile. Open Finance is an excellent opportunity to do so.
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