As the federal government considers ‘resets’ to a system connecting bank customer data to finance startups, critics fear proposed limitations would only pull the handbrake on Australia’s fintech sector.
Under the Consumer Data Right (CDR), consumers can choose to safely share their financial data between banks, fintechs, and energy providers.
Open banking, the first CDR use case, can help users consolidate data from multiple banks in one app, switch to new banking products and services, or shop for suitable home loan deals.
Small businesses can use open banking to plug transaction data from multiple sources into their accounting software.
The Australian startup sector broadly welcomed the CDR when it debuted in 2020, and dozens of banks, startups, and energy companies are now plugged in.
But complex rules and the cost of compliance have hampered universal CDR adoption, leading the Albanese government in 2024 to embark on a policy ‘reset’.
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The Treasury is now asking stakeholders if excluding small banks from the CDR mandate could actually benefit the open banking system in the long run.
CDR users have told the government the cost of accessing the system is simply too high for small banks, given the relatively low take-up of open banking services by customers.
Under one Treasury proposal, authorised deposit-taking institutions controlling assets below $5 billion would be exempted from the CDR, leaving around 22 banks plugged in.
These size exemptions already exist in the non-bank lending and energy space, the Treasury notes.
Carving out smaller banks — and their valuable consumer data — could weaken the system and make it harder for new startups to take part, according to Rehan D’Almeida, CEO of industry group FinTech Australia.
“The power of this pro-competition regime is its universality, which empowers consumers, drives innovation and preserves competition,” he said, in a statement released Monday.
“Creating carveouts is likely to create a two-speed system that forces reliance on less secure data-sharing methods, like screen scraping,” he added, referring to the simple but insecure data extraction process the CDR was designed to replace.
“Australians deserve a functional open banking system and there are promising signs the government is otherwise close to optimising the policy settings.”
Other CDR participants say open banking would improve if financial institutions actually invested more in their systems.
The debate over compliance costs is “noise”, said Tony Thrassis, head of open banking, markets, and compliance at Frollo, a company building open banking tools.
In the foreword to Frollo’s 2025 State of Open Banking report, published in August, Thrassis said the biggest open banking roadblock is actually failed compliance checks — a problem banks could solve with better authorisation systems.
“People report trying multiple times before they succeed — or give up,” he said.
“Many [fintechs] are frustrated by the banks’ lack of willingness to prioritise this issue. How can the CDR succeed if consumers cannot connect their accounts?”
In his statement, D’Almeida praised the government’s earlier “exploration of new ways to streamline consumer consents”
The Australian Banking Association, the industry group representing major financial institutions, last year declared the sector has invested $1.5 billion into open banking since 2018.
In its July 2024 breakdown of the CDR landscape, it found the cost-per-customer is declining over time but “remains economically unsustainable”.
“It’s time to go back to the drawing board”, said outgoing CEO Anna Bligh.
