“Open super” an opportunity for smart super funds

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CONTRIBUTED ARTICLE by Jonathan Steffanoni

Superannuation funds should be prepared for the introduction of an “open super” regime in the next few years. This should be an opportunity for the smartest funds, rather than a threat.

The current moves towards “open banking” is the first step of the broader move towards a “consumer data right”. It represents a fundamental shift in the balance of power in the information economy, and makes “open super” an inevitability.

We are seeing growing momentum towards placing the power inherent in data into the hands of individuals, and a greater responsibility on institutions when it comes to managing information and data. The recent Facebook and Cambridge Analytica fiasco is a timely lesson on the dangers of mismanaging data, and one that financial institutions would be wise to heed.

After all, financial institutions managing other people’s savings also manage other people’s data. It will no longer be acceptable to have individuals merely click to agree on having their data shared without understanding the implications. There may also be moves to raise the standard of care required by institutions holding consumer data.

People are becoming aware of the value of their information and will increasingly seek to take back control, driving a shift towards relationships built on a more “open data” ecosystem.

Open data is a broader concept that the proposed Consumer Data Right. It generally involves the idea that some data should be freely available for use by the people it relates to, in flexible ways which aren’t tied to a particular technology or organisation.

The “some data” aspect is important. While there are large amounts of data which are intellectual property and therefore controlled by whoever holds the rights to own it, organisations hold large quantities of valuable data about individuals which isn’t intellectual property and therefore cannot be owned by anybody.

Typical examples of such data include personal details, transactional records, balances, and information which an individual or third party has provided an organisation.

The shift towards open data is gaining even more impetus from legislative changes such as the mooted Data Sharing and Release Act.

In addition, the Productivity Commission report into Data Availability & Use, released last year, includes a number of noteworthy proposals. Indeed, the breadth of the proposed change is significant. It will cover everything from financial services, health, education, publicly funded academic research and anything else which we put online.

The central premise of the recommendations is that data which has been sourced from individuals, whether directly or indirectly, remains accessible to the individual. However, this doesn’t necessarily mean that the data is proprietary i.e. something which can be owned.

The recommendations go on to say that individuals should have a “comprehensive right” to data, allowing them to:

  • share in perpetuity joint access to and use of their consumer data with the data holder
  • receive a copy of their consumer data
  • request edits or corrections to it for reasons of accuracy
  • be informed of the trade or other disclosure of consumer data to third parties
  • direct data holders to transfer data in machine-readable form, either to the individual or to a nominated third party.

Notably, the report weighs in on the question of what information should be classified as “consumer data”. At its broadest level, the Productivity Commission recommends that it should include:

  • personal information (as defined in the Privacy Act) in digital form
  • files posted online by the consumer
  • data created from consumers’ online transactions, Internet-connected activity or digital devices
  • data purchased or obtained from a third party that is about the identified consumer
  • other data associated with transactions or activity that is held in digital form and relevant to the transfer of data to a nominated third party; and
  • data that is only imputed by a data holder to be about a consumer.

This definition is significant and, if implemented, would have a number of implications for superannuation funds.

However, while the recommendations of the Commission may not be adopted into public policy, they are themes which, at the very least, are likely to be further developed in the future.

So, what are the implications of the Productivity Commission recommendations for the superannuation industry? One key implication is that it provides a framework for turning “open banking” into “open super”.

While open banking is in its infancy in Australia, it is already happening internationally, and a reform pathway has been forged here over the past couple of years. A series of reviews, inquiries, and public policy announcements suggest that we’re on the verge of open banking from mid 2018.

Open banking will mean that information such as transaction and loan repayment data will be available to customers with their consent, who should then be able to use that data to access better financial products or services in a safe and secure manner.

It would be an anomaly if the superannuation and pensions industry were not the subject of new laws to govern the opening up of member data to members.

While some funds may view this as a threat, others will no doubt recognize the opportunity. One obvious opportunity is that it will encourage competition and innovation.

In competition policy, information asymmetry is an important consideration when analysing bargaining power of participants in a market. Where too much information is concentrated within the control of a participant, it tends to stifle competition, innovation and efficiency in a market.

In an environment where policy makers are looking at ways to promote greater levels of engagement and competition in the industry, innovation around the way super funds interact with members presents a significant opportunity and can add value to the services they provide.

It is an opportunity to create better outcomes for members, and indeed to continuously improve Australia’s position as a world leader in retirement incomes.

The window between “open banking” commencing and “open super” being introduced might be an initial period of opportunity for any superannuation fund which is able to act quickly to enhance member experience and outcomes by integrating banking data in some of the following ways:

  • single view of banking and retirement savings, improved member experience
  • Reconciliation of employer contributions with salary payment transactions
  • Behavioural analysis of member savings and spending behaviour
  • Smart assessment of the lifestyle impact of any retirement income replacement shortfall

 

Inevitably, it will be vital for superannuation funds, and other financial services organisations, to ensure that data quality is actively managed, if members are to have the key to access it.

 

Data quality issues will be more visible to members, and potentially present a risk to reputation if member data quality isn’t good enough.

Superannuation funds should start taking steps now to ensure their data management approach will stand up to the scrutiny of both regulators and members, in preparation for the brave new world of open super.

 

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ARTICLE FIRST PUBLISHED IN SUPER FUNDS MAGAZINE: https://www.superannuation.asn.au/resources/superfunds-magazine/issues/2018/may/open-super-an-opportunity-for-smart-super-funds