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How big data can keep the banks in check

Clancy Yeates

When it comes to your finances, big brother is certainly watching.

As we do more shopping and banking online, banks get an ever more elaborate picture of our spending habits and how we manage money.

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Productivity commission spruiks 'new data revolution'

Right now citizens don't have access to their own data, but the Productivity Commission has put forward a bold plan to change that. Find out how it will benefit you.

They can track where you spend, what you're buying, and how this changes according to age or gender.

"We know exactly who's spending what, how many times people are interacting with Apple Pay, which cards they use," ANZ chief executive Shayne Elliott said late last year.

Elliott was referring to customers who've uploaded their credit cards onto their iPhones using a system called Apple Pay, which turns a phone into a "digital wallet". But all banks get the same information on anyone using a credit card. ANZ's oldest customer to upload their credit card onto their iPhone is 90, by the way.

In Japan, things have gone further. Banks there are reportedly experimenting with computer programs that analyse recorded conversations between customers and staff in call centres, then figure out what type of comments prompt customers to buy products. It can then helpfully suggest to bankers when to "interject" to best make a sale.

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The potential for things to cross a line and get creepy is pretty clear. But what if this information could be used to get customers a better deal?

Well, perhaps it could be.

One of the more interesting recommendations of last year's House of Representatives banking inquiry was to force banks to securely "share" more of the financial data they hold on millions of Australians.

The idea isn't as crazy as it may sound. Indeed, if the government is serious about putting more competitive heat on the Big Four banks – something it's been pursuing since Labor's popular call for a banking royal commission – this would be a good place to start.

Your data, you see, has become a hot commodity in the financial world. Why shouldn't you be able to get value out of it?

Banks have always known huge amounts about their customers. But the online revolution means this data is now being sought by a new wave of financial technology, or "fintech" businesses, who also want to lend you money or provide you with a transaction account.

Aside from their (recently tarnished) reputations, banks' data is one of the biggest advantages they have against these upstarts.

In Britain, the government wants to even the playing field.

In what it calls an "open banking revolution", big British lenders have been given until 2018 to comply with a system that would allow customers to easily "share" their bank account histories with rival banks, in search of a better deal.

It's being done in a way that means no one's passwords would be released, nor would private financial material without the customer's permission.

And guess why Britain went down this path: it said the older established banks weren't competing hard enough in a market they dominated. Sound familiar?

After the Australian banks failed to match official interest rate cuts last August, politicians and regulators here took notice. A parliamentary inquiry into banks that Malcolm Turnbull ordered that month said the local banks should be forced into a similar scheme by 2018.

Why would that help?

You can see why the banks' rivals want to get their hands on the data. But economics suggest consumers end up ahead if corporations give people access to the data they hold on them, especially in a concentrated market like banking, where about 80 per cent of home loans are with the big four.

One benefit of data sharing is it could make it easier to dump your bank if you weren't happy with its performance – something very few of us do today, possibly because of the hassles involved.

Data sharing could mean being able to change banks without needing to hand over piles of documents to prove your identity, because your existing bank would have to pass this information on.

If smaller rival banks could easily get electronic files showing your income and spending, they'd also be better placed to offer you a competitive interest rate on your mortgage.

Big data can even help deter consumers from making financial decisions that only really serve to enrich bank shareholders, like paying sky-high interest rates of 20 per cent or higher on credit cards.

The inquiry describes an online program that would tell people – based on their financial history – whether they really should sign up for that platinum rewards credit card, or if a no-frills card with a lower rate might make more sense for them.

As you'd expect, the banks are less than thrilled about calls for them to share the most lucrative data they hold.

National Australia Bank and ANZ told a Productivity Commission inquiry in this area they'd support consumers having more access to their data, but have also raised concerns about their commercial interests.

But for a Prime Minister who loves talking about innovation and has a political problem with the banks, adopting this recommendation could make a lot of sense.

Ross Gittins is on leave.

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