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Is banking about to get more competitive?

Tug of War

The big four banks will need to get their act together — and no, I’m not even talking about the Royal Commission.

This week’s Federal budget included $45m for the development of the Consumer Data Right, a mechanism that allows individuals and businesses to share their personal data with accredited service providers. The funding for this starts on 1 July 2018, spread over four years.

As expected, a big beneficiary of this will be the average consumer.

The ‘open banking’ revolution promises easier ways of comparing and reducing the costs of banking.

Hopefully this levels the playing field somewhat between the big four banks and smaller competitors.

All of the major banks will be required to make data on credit/debit cards, deposit and transaction accounts available by July next year. Mortgages and other banking products will be made available throughout 2020.

Given mortgages are a large proportion of revenue for the likes of Westpac Banking Corp (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and, to a lesser extent, National Australia Bank Ltd. (ASX: NAB), it’s hoped that self-interest will see the banks defend their market share.

But the major banks will only improve product features and sharpen the pencil if consumers act, and take advantage of the new open banking environment.

Could you imagine, having a mortgage with Westpac for many years, now being able to simply direct personal banking information such as interest rates, products held and repayment histories to regional competitors like Bendigo and Adelaide Bank Ltd (ASX: BEN), Auswide Bank Ltd (ASX: ABA), Suncorp Group Ltd (ASX: SUN) or MyState Limited (ASX: MYS), and receive an instant price comparison on your annual interest bill?

This should be a game-changer, as long as there are safe-guards against the misuse of personal data.

I say should because it will depend on consumers not giving in to apathy and actually making a conscious decision to keep their current providers on their toes.

But it’s hoped that many of the barriers to changing banking products disappear, costs do actually fall, and the ability to price compare is effective.

Eventually, data relating to other sectors — energy, telecommunications, insurance and superannuation — will follow.

I look forward to taking advantage of this personally and will definitely shop around.

Monies we save, of course, will be allocated to our household’s savings and investment plan in an effort to pay for our retirement down the road.

If you know you have some big-ticket items coming up over the next decade or so — kids’ education and retirement being just two — then it’s important you don’t squander your savings.

Therefore, if you’re able to save thousands of dollars on a mortgage via improved price comparison services in the near future, then a good use of at least some of this money is to buy a sensible basket of listed companies, and then hold them for many years.

Where to invest $1,000 right now

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Motley Fool contributor Edward Vesely has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of MyState Limited and National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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