Four years in, CDR uptake remains ‘disappointingly low’

Open Banking

Fewer than one per cent of banking customers are making use of Australia’s B2B data sharing scheme, the Consumer Data Right (CDR), with already “early signs of decelerating growth” as innovation and new use cases stagnate, a new report commissioned by the Australian Banking Association (ABA) has found.

At the end of 2023, the review, conducted by Accenture, found that just 0.31 per cent of bank customers in Australia were actively using the CDR four years after the scheme’s official launch.

This compares to adoption rates of 12.7 per cent of UK banking consumers, 45-70 per cent of Singapore consumers, and 61.7 per cent of Indian consumers for comparable open data sharing schemes worldwide.

Further, the report found that more than 50 per cent of data-sharing arrangements confirmed on Australia’s CDR were discontinued or allowed to lapse throughout the year.

Total active arrangements on the CDR reached around 197,000 at the beginning of 2024. Around four out of five (79 per cent) of these arrangements were with major banks, with only one in five (21 per cent) with mid-tier banks.

With an average of around 1.1 arrangements per unique customer, the report concludes that most customers appear to be sharing data only on a single product, without further use cases being utilised.

“Penetration of CDR amongst bank customers remains insignificant, in large part due to limited stickiness of arrangements – increasing growth in new customer acquisitions is required to grow the active customer base,” the report read.

“The lack of growth in arrangements per customer suggests limited CDR innovation and absence of the development of ‘category killers’.”

The review noted that consumer uptake of CDR arrangements is particularly low when compared against mobile wallet use in Australia, which reached 10 per cent user adoption three years after Apple Pay entered the market (at the end of 2015), and continued to accelerate in growth to 36 per cent user adoption in 2022.

The low uptake and continuing usage rates are particularly galling considering the “substantial investment” from both government and industry participants in the CDR scheme, “which continues to incur significant ongoing costs”, the report authors said.

The banking industry alone is estimated to have invested around $1.5 billion since 2018 in the CDR.

This spend has also been disproportionately higher – nearly three times as much – for mid-tier banks (1.1 per cent of operating costs) versus for major banks (0.4 per cent of operating costs).

The vast majority of this spend has been on compliance, with the report estimating that banks, between 2018 and 2023, laid out around 97 per cent of their allocated CDR funds to meet the scheme’s strict regulatory demands. This has left little in the kitty for banks to persue customer-focused innovations and functionalities.

According to the ABA, this high compliance cost has forced “difficult trade-offs – particularly for smaller banks – leading to vital technology and customer projects being deprioritised”.

“The level of CDR expenditure required by data holders to meet compliance obligations has crowded out meaningful investment into ADR [accredited data recipient] functionality,” the report read.

“Persistently high compliance spend will continue to limit the capacity of data holders to invest in strategic CDR initiatives, impacting the overall availability and appeal of ADR functionality for consumers.”

As well, return on investment seems to be a significant bugbear for the industry, with the report arguing that the cost of the CDR for banks per customer “remains economically unsustainable”.

While costs have declined substantially since the CDR’s launch – from $62,600 per customer in 2020 to $3,200 in 2023 – this latter cost, still considerable, appears to be “settling in” rather than diminishing further, as expected.

“On a cost-per-customer basis the disproportionate impact for mid-tier [banks] is likely to be structural.

“The limited customer uptake of CDR has resulted in a very high accrued cost per customer and implies a long payback period.”

The report added: “At the system level, there has been an insufficient focus on cost and substantiation of benefits – with the resultant scope, standards, and obligations often being too extensive, complex, and excessively expensive to implement.”

Objectives of CDR ‘largely not achieved’

Accenture identified 104 separate use cases (the majority in personal financial management and CDR connectivity services) leveraging the CDR, up from just 15 in 2021, with innovation apparent across each use case category, it said.

However, the report authors stressed that despite this slowly emerging innovation environment, these use cases have yet to be converted into a meaningful increase in consumers using the CDR, “suggesting diminishing returns on product innovation and diversity”.

“The banking industry recognises the benefits CDR infrastructure can enable.

“However, challenges in policy and standards design, and implementation have impeded the CDR’s success. These include unsubstantiated consumer propositions, an absence of a robust cost/benefit governance framework, and excessive complexity and prescriptiveness in compliance obligations.”

The CDR’s overriding objectives, the report authors argued, have largely not been achieved, and in some cases, like competition, the needle appears to have moved backwards.

Of the four key objectives of the data sharing scheme, just one, according to Accenture, has been achieved: ‘promoting safer and more secure data sharing’.

Consumer benefits and innovation were regarded as being ‘largely not achieved’, with consumer uptake being stymied by limited compelling use cases, limited public awareness of the CDR, and limited underlying trust in sharing data.

One of the key selling point for the CDR, particularly for smaller or challenger institutions, was the promise of enhanced competition and market efficiency in the financial services sector. For Accenture, this objective appears to have gone backwards since the CDR’s introduction, with mid-tier banks disproportionately impacted by high compliance spend, the relatively low number of ADRs in market, and current CDR reciprocity rules ‘not working’.

Commenting on the report, ABA chief executive Anna Bligh underscored the “heavy investments” made by Australian banks to deliver the CDR.

“Despite the best efforts of Government, regulators and industry, this review makes it clear that CDR has not realised its potential.

“Australians have enthusiastically embraced digital innovations in banking such as mobile wallets and PayID, however uptake of the CDR has been comparatively low.

She urged for the CDR’s regulators and builders to “go back to the drawing board”.

“The current CDR regime isn’t delivering for customers or enhancing competition and a new pathway forward is needed.”