The hidden banking danger coming on July 1
BIG changes are coming to banking laws and it'll mean a better deal for you - but not all groups are convinced.
From July 1, Australians will have greater control of their personal finance data, which will give them the ability to switch lenders and get a better deal on their loans.
It's currently difficult to access your own information. It's also difficult to shop around for better deals because your bank won't share your data with rival lenders.
In a nutshell, this means it's costly and time consuming to try and find a financial product that better suits you.
Open banking has been proposed as a solution to this, giving borrowers more information to help make a better decision with their money if they opt into the system.
It also means consumers will have more power at the negotiating table when applying for a loan or other financial service, according UNSW competition law specialist Professor Deborah Healey.
"Banks and lenders will have more accurate data on which to assess risk in relation to borrowing by that particular consumer," Prof Healey told news.com.au.
"Because the system will become more competitive, many consumers should be able to negotiate a better deal involving options more suited to them in particular, because the information will show that they are a good or reasonable financial risk."
Australians are typically loyal to their financial providers but the revelations of misconduct exposed by the banking royal commission has eroded trust.
According to research from comparison site Finder, 40 per cent of adults are still with the same bank they had as a child.
This means seven million Australians are forgoing the opportunity to explore better rates on bank accounts, credit cards and loans, Finder chief executive Fred Schebesta said.
He said access to consumer data through open banking was encouraging institutions to provide new products and services that should offer better deals.
"If you opt in to share your data, businesses may gain a deeper insight into your transaction behaviour which may help you save money on your credit card or transaction account," Mr Schebesta said.
"If you do share your data, make sure the business is reputable and one that you trust, and make sure you take note of the expiry date of your consent as you may need to regularly opt in for consent under the proposed guidelines."
But a consumer advocacy group says the access to data will benefit those who are financially privileged while people who are in financial hardship will be vulnerable to questionable services such as payday lenders.
The Financial Rights Legal Centre wrote a submission to the Senate Economics Legislation Committee warning that open banking would increase economic inequality because dodgy lenders will profile and target people who can't afford to service a loan.
"People who are experiencing financial hardship are very valuable to a lot of fringe lenders and other services who may take advantage of the fact that they are desperate to get anything," the centre's open banking expert Drew Macrae told news.com.au.
In its submission to the Senate, the centre said: "Those in more precarious financial situations are more likely to be unfairly charged higher amounts or pushed to second tier and high cost fringe lenders.
"Access to data and continuous monitoring are likely to lead to predatory practices, for example by payday lenders."
Prof Healey agrees there is a flip side to open banking that may be detrimental to those suffering financial hardship.
"There is a possibility that vulnerable consumers may pay more for loans because their financial circumstances may be judged on the basis of their current financial circumstances," she said.
The legislation to approve open banking was introduced to parliament but will need to be reintroduced because of the re-forming of government after the Federal Election.
However it is widely expected the Coalition Government will make it a priority once parliament resumes and it will be passed before July 1.