Category: Digital Disruption

Consumer Data Right Timeline Delayed

The ACCC has announced an update on the timeline for the implementation and launch of the Consumer Data Right (CDR) in the banking sector, deferring the launch of certain aspects from February to July 2020.

Consumers will be able to direct major banks to share their credit and debit card, deposit account and transaction account data with accredited service providers from 1 July 2020. Consumers’ mortgage and personal loan data will be able to be shared after 1 November 2020.

The ACCC has formed the view that this updated timeline for these aspects of the CDR reforms will allow additional implementation work and testing to be completed and better ensure necessary security and privacy protections operate effectively.

“The CDR is a complex but fundamental competition and consumer reform and we are committed to delivering it only after we are confident the system is resilient, user friendly and properly tested,” ACCC Commissioner Sarah Court said.

“Robust privacy protection and information security are core features of the CDR and establishing appropriate regulatory settings and IT infrastructure cannot be rushed.”

The ACCC will make the CDR Rules in January 2020 that reflect this adjustment to the timetable, and will conduct further consultation regarding any consequential changes to other phases of the CDR.

Background:

The Consumer Data Right will give consumers the right to safely access data about them, held by businesses, and direct this information be transferred to trusted third parties of their choice.

Banking will be the first sector to which the CDR applies. The CDR will subsequently be rolled out sector-by-sector, with banking being followed by energy and telecommunications.

Data portability increases competition, particularly for more complex products and services, and allows businesses to make more tailored offerings to consumers.

The ACCC has been working closely for several months with the big 4 banks and the 9 entities selected to be the initial data recipients to test and refine the CDR ecosystem.

Fed Says Some SME Online Lender Websites Are Flawed

The US Federal Reserve Board on Thursday released Uncertain Terms: What Small Business Borrowers Find When Browsing Online Lender Websites, a report that examines the information that prospective small business borrowers encounter when researching and comparing credit products offered by online lenders.

Nonbank online lenders are becoming more mainstream alternative providers of financing to small businesses. In 2018, nearly one-third of small business owners seeking credit reported having applied at a nonbank online lender. The industry’s growing reach has the potential to expand access to credit for small firms, but also raises concerns about how product costs and features are disclosed. The report’s analysis of a sampling of online content finds significant variation in the amount of upfront information provided, especially on costs. On some sites, descriptions feature little or no information about the actual products or about rates, fees, and repayment terms. Lenders that offer term loans are likely to show costs as an annual rate, while others convey costs using terminology that may be unfamiliar to prospective borrowers. Details on interest rates, if shown, are most often found in footnotes, fine print, or frequently asked questions.

The report’s findings build on prior work, including two rounds of focus groups with small business owners who reported challenges with the lack of standardization in product descriptions and with understanding product terms and costs.

In addition, the report finds that a number of websites require prospective borrowers to furnish information about themselves and their businesses in order to obtain details about product costs and terms. Lenders’ policies permit any data provided by the small business owner to be used by the lender and other third parties to contact business owners, often leading to bothersome sales calls. Moreover, online lenders make frequent use of trackers to monitor visitors on their websites. Even when visitors do not share identifying information with the lender, embedded trackers may collect data on how they navigate the website as well as other sites visited.

The Fragility Of Freedom In The Digital Age

We look at developments in Greece, a recent speech from the RBA and the latest on the cash restriction bill. What are we giving up?

RBA Advocates A Strong Digital Identity System

https://www.rba.gov.au/speeches/2019/sp-gov-2019-12-10.html

https://www.tornosnews.gr/en/greek-news/economy/38055-greeks-must-pay-more-online-or-face-fines-in-campaign-to-curb-tax-evasion.html

Afterpay Breached Money Laundering Legislation

Afterpay breached money laundering law because of incorrect legal advice, according to an auditor. Via InvestorDaily.

The buy-now, pay-later giant was the subject of an AUSTRAC probe over allegations it breached the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF).

But an independent auditor contracted by Afterpay has discovered that the breaches occurred because of incorrect legal advice. 

“In reaching these findings I have established that Afterpay’s compliance with its AML/CTF obligations was, from the outset and over time, based upon legal advice from top tier Australian law firms,” wrote Neil Jeans, an anti-money laundering consultant who conducted the audit. 

“I am of the opinion this initial legal advice was incorrect.”

The unnamed law firms decided Afterpay was not providing loans to consumers but instead providing factoring services to merchants. This advice “did not reflect Afterpay’s business model” and led to the company focusing its AML/CTF controls upon merchants rather than consumers. 

“Despite Afterpay having a compliance-focused culture, the consequences of being provided with incorrect legal advice has resulted in historic non-compliance with the AML/CTF Act and Rules,” Mr Jeans wrote in the report. 

However, the audit noted that Afterpay’s transaction monitoring system is now “effective, efficient and intelligent” as a result of greater resource allocation. 

Mr Jeans also decided that the nature of Afterpay’s service mitigates some money laundering and terrorism financing risks, and noted that the company’s AML/CTF compliance had “evolved and matured over time”. 

Afterpay was quick to seize on the opportunities of the report in light of Westpac’s recent breaches of the same laws. 

“Afterpay reaffirms that it has not identified any money laundering or terrorism financing activity via our systems to date,” the company said in a statement accompanying the report. 

But the ball is now in AUSTRAC’s court. The regulator will consider the report and decide whether to take further action.

Afterpay has pledged to continue its co-operation with AUSTRAC.

Digital Takeovers, Transactions May Harm Consumers: ACCC

Takeovers of smaller rivals by digital platforms, including their data sets, may pose a threat to consumers’ choice and privacy, said ACCC Chair Rod Sims.

Mr Sims was speaking at the Consumer Policy Research Conference (CPRC) Conference on the ACCC’s perspectives on consumer welfare in the data economy.

“Few consumers are fully informed of, nor can they effectively control, how their data is going to be used and shared. There are further concerns when the service they sign up to is taken over by another business,” said Mr Sims.

Mr Sims raised these issues in relation to Google’s recently announced proposed acquisition of Fitbit.

“The change in data collection policies, when a company like Fitbit transfers its data to Google, creates a very uncertain world for consumers who shared very personal information about their health to Fitbit under a certain set of privacy terms,” said Mr Sims.

At the time of Google’s acquisition of DoubleClick, DoubleClick reportedly denied that the data it collects through its system for serving ads would be combined with Google’s search data.  Eight years later, Google updated its privacy policy and removed a commitment not to combine Doubleclick data with personally identifiable data held by Google.

When Facebook acquired WhatsApp, Facebook claimed it was unable to establish reliable matching between Facebook users and WhatsApp users’ accounts. Two years later, WhatsApp updated its terms of service and privacy policy, indicating it could link WhatsApp users’ phone numbers with Facebook users’ identities.

“Given the history of digital platforms making statements as to what they intend to do with data and what they actually do down the track, it is a stretch to believe any commitment Google makes in relation Fitbit users’ data will still be in place five years from now.”

“Clearly, personal health data is an increasingly valuable commodity so it is important when consumers sign up to a particular health platform their original privacy choices are respected and their personal data is protected even if that company is sold.”

Research from the ACCC inquiry showed around 80 per cent of users considered digital platforms tracking their online behaviour to create profiles, and also the sharing their personal information with an unknown third party, is a misuse of their information.

Facebook’s recent announcement of its planned offering of a cryptocurrency Libra is also a potential cause for concern, said Mr Sims.

“Here we have an organisation, whose lifeblood is to monetise data, getting into the financial services industry,” said Mr Sims.

“A lack of clear information about how their data will be handled reduces consumers’ ability to make informed choices based on that data.”

“During our DPI we found a lack of consumer protection and effective deterrence of poor data practises have undermined consumer’s ability to choose products.”

“Vague, long and complex data policies contribute to this substantial disconnect between how consumers think their data should be treated and how it is actually treated,” said Mr Sims.

“Transparency and inadequate disclosure issues involving digital platforms and consumer data were a major focus of our Inquiry, and remain one of the ACCC’s top priorities.” 

Why Cash is Still King

Today the CBA had a systems problem:

While the ATM and EFTPOS merchant services are working and debit and credit cards are working, some debit card payments may be affected.

But BPAY services including PAY-ID payments not available and Cardless Cash not available. In addition some in-branch service, some call centre services and business services on CommBiz were hit.

The CommBank app and NetBank are available with limited functionality.

A small number of branches have closed.

They said “We are experiencing higher than normal volume of calls to our contact centres which means there are longer wait times. Some of our contact centre services are also impacted limiting what services we can provide”.

Now, consider the situation where cash is less available. Sometime good old cash is still king!

New digital banks face ‘significant risks’

Morningstar has low hopes for new banks like Volt, Xinja, 86 400 and Judo, which it says are at high risk of taking on low-quality debt in the pursuit of growth, via InvestorDaily.

In a research report published this week, Morningstar analyst Nathan Zaia said neobanks are unlikely to cause any disruption in the Australian banking industry, which remains dominated by CBA, Westpac, NAB and ANZ. 

“Volt, 86 400, Up, Xinja and Judo are just a few of the interestingly named banks gaining media attention as ‘disruptors’ in the Australian banking sector,” Mr Zaia said. 

“It’s easy to be lured by a new website, heavy marketing, new account discounts and a promise of offering something different. But history has shown it can be extremely difficult to build requited scale to run a profitable and sustainable bank.”

The analyst said competition from non-bank and digital banks have had limited effect on the banking landscape to date. 

He said a number of neobanks, focused on digital offerings, are growing and while some are reporting large percentage growth rates in their loan books, they have made only a minor dent in market share.

Mr Zaia noted that digital-only banking is nothing new in Australia, pointing to ING Bank Australia, which has held a banking licence since 1994 and amassed a total loan book of $60 million and $47 million in deposits. Morningstar stated that without the balance sheet and technology to leverage tech spend, neobanks will struggle to be as disruptive as ING. 

“There are significant risks to the challenger banks and fintech start-ups that we think the market is underestimating,” Mr Zaia said. 

“Chasing growth in lending often comes at the expense of credit quality, and in a downturn, spectacular growth can quickly give way to mounting bad debts,” he said, pointing to numerous boom and bust examples in Australia.

CBA acquired Bankwest in 2008 after its UK parent at the time, HBOS, ran into financial trouble during the GFC. Mr Zaia said the bank incurred hefty impairments following a period of rapid expansion and took on high-risk loans that other lenders did not want. 

“Westpac’s acquisition of RAMS Home Loans followed another notable industry failure,” the analyst said. 

“In 2007 the RAMS Home Loans business model of lending to low-income earners using cheaply sourced debt in the US came unstuck when credit markets froze and it was unable to roll out $5 billion in commercial paper.”

Mr Zaia added that prioritising low growth over credit quality has also caught out regional bank Suncorp, which required a capital raising after incurring large corporate and commercial property impairments.