What happens to me HELP/HECS debt if I die? Do I have to pay it back if I move overseas? What on earth is Open Banking and why should I care? All of these questions, plus plenty more answered with a few questionable jokes thrown in.
The following is a transcript taken from episode 16 of the We Talk Cents podcast. The transcript is created by AI software so it might not be perfect - please forgive any imperfections or grammatical errors.
Dan Jovevski, Tim Poskitt, Blaize Pengilly
Blaize Pengilly 00:09
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Dan Jovevski 00:51
G'Day Welcome to another instalment of we talk centre podcast presented by ye money as always you joined by me Daniel resident finance expert
Blaize Pengilly 00:58
and me Blaize your resident shopaholic. Now we're about to jump into the news headlines. So if you don't care for the news, don't worry about it. Feel free to skip ahead a couple of minutes and we'll be getting help with your hex debt. And also chatting to today's guest to talk about open banking. We are joined by Tim Poskitt. Now, Dan, news headlines hit me what's caught your attention?
Dan Jovevski 01:20
Well, if you have been in the twittersphere, or the Google sphere or anything sphere, you have probably heard about GameStop or its code on the New York Stock Exchange. $GME, if you've seen it anywhere on the socials, it's probably because this little known company, which sells xboxes and PlayStations, has exploded in valuation, and the share price over the course of last week. Now, Blaize, there is a pretty high finance stuff here like things like put options and call options, which all sounds scary. But in essence, for those who don't know what's happening with GameStop, it's essentially the Battle of the Little Guy versus the big guy. There was a hedge fund or a big fund out of the US that was looking to egg on the demise of GameStop. And this had caught the attention of a subreddit called Wall Street bits, where they had a conversation around pushing the stock up to a point where this hedge fund was trying to say the ruin of GameStop almost go out of business. And whilst whilst the story is continuing, it is an absolutely amazing way that people have come together to rally behind a brand they really like and of course, Ilan Musk's tweets, game stock, I think really set them off along with some other people. But to give you an idea, the share price went from like something like $87, Tuesday the 26. And today, do you want take a stab of where it's currently trading at close?
Blaize Pengilly 02:59
Well, you know, my knowledge of the share market is very little. So my guess might be completely off. But I'm gonna say like 250
Dan Jovevski 03:09
Well, at the time, why not? It's it's gone to 350 bucks. So it's really like going up in value almost by four or five times in the space of like, a couple of days. So if you're invested over this week, you've gone up by 500 percents, you made five times your original investments.
Blaize Pengilly 03:28
Wow, I you know, Time Machine, if I had one turn back time, I would be getting into nullified GME, I'm assuming this is an American company.
Dan Jovevski 03:40
It is an American company Blaize And people warning out to our listeners that, you know, this is a speculative favour, there is nothing underlying about GameStop. That has changed as the business fundamentals. But this is what trade is called momentum investing with investing behind the momentum of the direction of the stock price movement. And to be honest, I think we're just gonna wait for this word to play out and make sense of it all. But it's certainly called a fervor out there in the twittersphere. And yeah, people want to read all about it, I think the simplest thing to do is just chuck it into Google, and you will be entertained for hours on end.
Blaize Pengilly 04:16
Well, as you know, I don't know much about stocks. But it's been all over my Facebook feed today. And I've seen quite a few names that I cannot comprehend. So I think in a couple of weeks, we'll definitely have someone in to talk about stocks and investing so we can learn more about GameStop. And what else is happening out in that realm. The only news headline that didn't catch my attention because it didn't exist this week was I was looking, I was looking for an update and our friend Stefan Thomas, the US programmer that lost his password. And unfortunately, no at the time of this recording, there's been no updates from him. So I think he might be still sitting on the two password attempts left to access his $300 million Bitcoin fortune so I'll be I'll be keeping my eyes peeled and following and seeing if we get any updates on that one
Dan Jovevski 05:05
place we can only hope it hopefully he finds that password that has popped into his mind in a dream and he wakes up in a haze and puts in his password and becomes a multi multi millionaire overnight. So, yeah, we're rooting Stefan on from the sidelines.What do we got for today's episode?
Blaize Pengilly 05:23
Today we are talking HELP with HECS debt. Should we get into it then?
Dan Jovevski 05:29
Let's do it.
Blaize Pengilly 05:34
Okay, Dan, a topic that I have many many questions about is hex debt. Well, it's actually now called HELP debt. So HELP, with my HECS debt is what I'm after. And the way that I see HELP debt is it's kind of the original buy now pay later, isn't it down? It's study now pay later.
Dan Jovevski 05:56
can last for a very long time as well. So yeah, that that's a great analogy.
Blaize Pengilly 06:03
Yeah, well, I foolishly did one degree decided I didn't want to do that. Once I'd finished and then did another one and did another degree. So opening up my gov and checking my help desk is pretty much panic inducing. So Dan, I want to hear today, I've got a lot of questions, can you hate GLP? Me with my help desk, let's find out what it's all about guys.
Dan Jovevski 06:27
So for those who don't know what it is, what is a HELP debt or HECS help, or formerly known as hECS is a very simple way that people can go and receive an education, put it on the tab of the government, and then pay it off over the course of their careers. So if you're an eligible students attending a university course, or a vocational education program, you can access to help program through your education institution, and then apply for the loan program. And if you're approved, which majority people off the eligible programs, then you have the ability to pass the tab of your education over to the government and then pay that when you enter the workforce. It's a great way for people to postpone the cost of studying, because let's face it, it's pretty expensive. I don't know what a uni degree cost these days. But it's probably like, the last time I heard it was like 50 grand together like a general commerce degree, I mean, 50, grand, four years of your life, I mean, it's a lot of money. And most people don't have that money up front. And they can defer it and paid off when they start getting their income, which is really good, because not too many people can, you know, work three jobs to pay off a student loan, which if you're listening to this podcast in Australia, which most of you are, take, take a moment to maybe commiserate with their friends in the US where they have a very, very broken student debt system where they have to literally pay for their student loans whilst they're studying. And so you often hear people talking about having two or three jobs and trying to pay off their loans. In Australia, we're pretty fortunate to have this program. So it's a great way that the government support students going to give you an education.
Blaize Pengilly 08:07
We're super fortunate. I remember working, I think I had five jobs at one point during uni. And that wasn't even to pay for my uni degree that was just to pay for my life outside of uni. So we do have it pretty easy. Now, Dan, remind me again, because I know there's different types of debt. We've got good debt, bad debt, and is it okay debt? What's the difference? And where does student loans fit into this scale of debt?
Dan Jovevski 08:30
Excellent. It's a bit of a refresher, good debt is something that is either borrowed for investments, like buying an investment property, and then receiving a return via rental income stream, something that you expect to grow over time. So you're taking out a loan to invest into a asset or a thing that's going to return more money at a future point. Okay. So think about think about, okay, there has been something like a mortgage, where you have got the property that you're living in your own occupied home, you're paying that down over time, are you developing equity in your property that will obviously contribute to your net worth, that's a very positive sign of debt. Student loans, like we're talking about can also be okay did, because it means that you're investing into your future, and you're expecting to maybe increase your salary or your earnings over a particular period of time. So a lot of money spent upfront, but then maybe for a lifetime that benefit, where you can harness the skill or focus on a particular area of study that you're really passionate about and interested in. That can bring you a livelihood of bad debt is something where you're getting into debt when you probably could have saved up for the purchase. And a good example of this is maybe like a car loan, you're taking out a personal loan, maybe things like a holiday that you could have probably saved up for etc. Your credit cards, particularly ones where you don't make the full payment of the cards and in a paying interest or anything else like it, you know, a payday loan where you've got to pay an excessively high Rate on, that's considered bad debt, as the example has been given I would class student loans has been okay to where it's actually in a beneficial for people to obtain those loans in order to get trained and get skilled to increase their income over time.
Blaize Pengilly 10:19
Okay, great. So, student that Okay, then now who is eligible? Is it it's I know it's Australians, but who is eligible to receive a HELP loan?
Dan Jovevski 10:31
Well, there are certain requirements are generally the rules are that you have to be an Australian citizen holder, New Zealand special category, visa holder, permanent humanitarian visa. So I would say that for most people living in Australia, they cover off these requirements. Of course, if you're an international student, you may not be a citizen, and therefore eligible for help. And that's really how a lot of the universities make their money is by heavy mix of international students as well as domestic but if you are a naturalised Australian citizen, then you are in luck in terms of being able to defer your payment for your studies to the government and pay them overtime.
Blaize Pengilly 11:11
I wanted to say as he ozzy, ozzy, ozzy loan loan loan, but it doesn't have the same ring to it. And then, so you get you get the loan, you get to study. And then when do you start paying it back,
Dan Jovevski 11:25
You pay back, you helped it through the tax system, once you earn above a compulsory repayment threshold, and the compulsory repayment threshold is different and each year, and indexes with inflation, but for this year, 2022 2021. The 2022, the 2021 income year is $46,620. So for most people, this is your typical grad salary, or starting salary. So you probably expect to start paying back your hex as soon as you enter the workforce. Okay, so you only have to be earning a certain amount.
Blaize Pengilly 11:59
Does that mean that if I, you know, when if you've got a loan, and you're learning earning less than that, even $1 less than that for the rest of your life, you'll never have to pay it off.
Dan Jovevski 12:10
I think I remember my days at uni, where we used to debate this in the in the pub about just sneaking into the threshold of the right Avenue and hanging back. But then you realise, actually your life earning a grad salary when you're 50? Probably the same, like living. But yes, that I think that is true, there is a I think there was a period of time, where if you don't make any repayments off, the government writes it off. It's a mythical period of time. And I think anybody knows about it all the government has really communicated out there to find out the people that may be, you know, the system.But for most people, they're probably looking at making a living and using their education to get that living, and therefore earning above that threshold.
Blaize Pengilly 12:54
You know what I'm seeing, I'm seeing a movie coming to cinemas near you this summer, we follow the stories of the people living under the radar, those that have helped said and now living on the fringes of society earning less than the compulsory repayment threshold each and every year. Or it could be a reality show. And you know, follow all these people that are avoiding it. Probably not that interesting, though. So don't don't take your TV show advice for me. Dan
Dan Jovevski 13:19
Well Blaize. I think it's really interesting, because I think a couple years ago, there was a study conducted by the Australian Government to actually uncover how many people have gone from pain in either hixton. And what they actually uncovered was Korea, or people that were really indecisive. You know, those people that, you know, they start uni as at the age of 18, but they're still there at 26. But they're on their fourth degree. And they've accumulated heaps and heaps the next year but haven't found their true calling and passion in life that can cost the Australian Government quite a bit of money if they do that. But I think they're tightening up rules now to lower the ability to get out of the obligation of paying by gas.
Blaize Pengilly 13:57
So you can't have 14 half finished degrees under your belt. Dan, then how do you pay it back? And how does it differ from a regular loan? Because you said before something about indexation, so could you go over that for me, please?
Dan Jovevski 14:14
Absolutely. So you have to earn enough to make the repayments of the threshold. And this is done automatically. So you don't need to worry about cutting a check to the government. It comes out of your pay packet from your employer. So it's it happens without you having to do anything, which is really good. It's a less administrative burden. And so it's basically indexed with inflation. Inflation, typically in Australia has been running at around 1.5 to 2%. So expect your balance to increase with the rate of inflation, and that is to protect the government on the repayment amount. As we know inflation reduces the value of our dollars over time. So the government wants to protect his investment into you by getting the amount back in today's dollars as opposed to the dollars that we borrowed, many, many years ago.
Blaize Pengilly 15:04
So indexing it with inflation is cheaper than potentially paying interest. Or it would be unless it was a really low interest rate.
Dan Jovevski 15:15
That's 100%. Correct. You know, I think there's no product provider that comes to my mind that has an interest rate of 2% on a personal loan, particularly when it's unsecured and secured against anything at all. So it is a really fair way that the government supports you to give you an education without you having to pay any interest on that loan. The other benefit and how it differs from a regular loan players is that there's no deadline to repay that additional loan, you've got to set loan term which you have to make instalments repayments with the ex payment, as long as you're earning an income, then you're paying your HECS back, if you're not earning an income for whatever reason, there is no requirement to pay your hex which is really, really awesome. And it's one of those things that doesn't get passed down to the people that you love. So if you happen to be a situation where you die, the dead dies with you. So you don't have to pass it on to your loved ones, your kids or your wife, etc, which is also you know, good because you don't want that burden to be carried down to your children,
Blaize Pengilly 16:14
Your debt dies with you. That's awesome. Now, not that I intend to do this. But maybe t's something I should consider. But is it worth paying off your HELP loan early?
Dan Jovevski 16:27
Wilkinson secret sauce is MRP. For a lot of people, even having a luxury to pay alone early probably is a bit of a stretch. But in instances where you want to accelerate the payoff of your HECS debt, this could mean that you're taking home more dollars from your employer each and every single pay cycle. So just imagine a scenario where you had an accident, you didn't have an extent, if you have a hex debt, this is a portion of your pay packet, it's going to go and make that repayment, which means you're not getting money today, or that additional dollars to do something else with your life, pay that pay off your mortgage, save your money, do whatever you want with it. So some people might see the benefit of saying, hey, if I clear out my hex debt, maybe I can actually do more things with the money that would hit my bank account, rather than than seeing that money go away to the government. So it's very rare that people would pay off their history earlier and make lump sum payments. But there isn't benefits with paying it off early, especially if you want to use the dollars that would be redirected to government for other purposes.
Blaize Pengilly 17:27
Okay, and what about if I wanted to say maybe get a personal loan or a home loan? Would having a large HECS or HELP debt? I should say, would that have could that affect my ability to get a mortgage? Or could it affect right?
Dan Jovevski 17:42
Yes, it would affect your borrowing power. So if you think about when a bank makes an assessment on your ability to take a loan, it doesn't use your gross income. As a quick reminder, your gross income, think about as gross. It's the money that you save at the top before the tax, you're netting off
Blaize Pengilly 17:59
my favourite amount of money
Dan Jovevski 18:03
is the money that actually hits your bank. Yeah, they can use for any purpose they pay you plays. And that net amount will go down because you're making a payment to the government to pay off your debt. So that would go to the government to pay off your debt, this will impact the amount that you can borrow it from the bank. So it will reduce your borrowing power by if you do have a HELP debt obligation. Now, if I'm making repayments, say, say I'm employed, I'm not self employed, and I'm making repayments, why are they not showing up on my pay slips? supplies? This is a really good question. And I think for a lot of people, if they if they're checking their mortgage account, they probably see the numbers have changed for quite some time, the government will only make an adjustment to your health balance at tax time. So once you've submitted your tax return, and whether you're paying tax or the government owes you tax, that will then set aside some money to pay off your health debt. And then you will see your updated balance. Your balance typically only updates once a year once you go through and submit your tax returns, or if you make any payments outside of the voluntary ones or the involuntary ones,
Blaize Pengilly 19:13
I see so is that why sometimes when you get a paste that premier employer, and you're not seeing hex or health being taken out on it, it's because it's lumped in with the tax that they take out. And then it's all clarified or looked over at the end of each financial year. And that's when the amounts are finalised. And you know how much you're paying back?
Dan Jovevski 19:34
Blaize Pengilly 19:36
Okay. Now what happens if so we mentioned it before, if you're one of those people that changes your mind a lot or you haven't really found the course that's your jam, and you moving in and out of different degrees. If you start a course and then go well, no, no, not for me. Do you still have to pay the health debt for it?
Dan Jovevski 19:55
es, you do. You have to pay you helped it if you attend a course and If you don't withdraw from the course by something they call the census date that you will accrue HECS debt obligation. And this can be pretty hefty. For example, if if you miss the day, like I think it's by the day or within 24 hours of the day, and you don't withdraw your course you eligible for the full amount of the course load. And that's a pretty big amount that you end up having to pay off over the course of your life. So that date is one that you need to put on your fridge, put on your electronic calendar, tell your mom and your dad about it. So they can remind you and pester you five days beforehand, and ensure that if you are going to stick around and do those units at uni, that you fully commit, and hopefully pass them, but if not, then withdraw out of the course before getting whacked with a long term debt that you cannot escape.
Blaize Pengilly 20:51
So the census date is like when you go to Messina or another ice cream place, and you want to have the taste tests, right and they go you can have two, you go Alright, then you have to choose those two really wisely. Because once you've hit that threshold of two or the census date, then you're done. And you have to commit, right. So it's bad analogy, but I'm in my mind, Dan, it's a warm day.
Dan Jovevski 21:17
That's great. Hopefully, well, I don't know how helped it is not as ice cream. But that's, that's a property very good. You've got to, you've got to get out while you can.
Blaize Pengilly 21:29
Now, Dan, not that I'd be doing this at the moment because of, you know, the whole pandemic thing that's happening around the world. But if I could jump on a plane, or get in a boat, or start swimming and move overseas, can I run my HELP debt
Dan Jovevski 21:45
Blaize the governor's thought of everything and then onto your plans. You have to use you have to make your payments, even if you're abroad. So they have this concept of calculating your worldwide income. So if you live in another country, and so you live in the US, you will calculate your income back to the Australian dollars. And if you're above threshold, they used to have to make your required payments, you have to do this to the Ico and you have to do that at the 31st of October PhD every single year if you are living abroad.
Blaize Pengilly 22:18
Okay, so there goes that plan. And any tax benefits from doing voluntary repayments if you do decide to pay off your loan early?
Dan Jovevski 22:29
No, certainly not any tax deductions for any voluntary payments, the only benefits will be is that you're probably going to see a bigger take home pay, if you do decide to make voluntary payments actually clear down your I helped it quicker. And that can be a really good thing, especially if you want to do something else that money. Okay. And one last question for you, Dan, does having a HELP debt affect my credit rating blows, it's one of those. It's one of those few debts that doesn't have any impact on your credit rating. So because there is no due date or repayment date or repayment about that you have to make it a specified schedule, it basically means is an open ended loan, that you don't have to worry about making the payment off. So if you can't default on the loan, and so therefore, it has no effect on your credit rating.
Blaize Pengilly 23:22
All right, that's awesome.
Dan Jovevski 23:24
So now that we've dashed the hopes and dreams of people upscaling to other countries around the world and not paying, if you are curious of uncovering what your HELP debt repayments are, then you can simply here to study uscis.gov.au has a table that shows you what your repayments are for the level of income. Now, I thought I'd make mention for those people who are planning to be high rollers that the biggest helped it contribution in terms of the percentage of your overall pay. If you're earning more than 136 grand a year, then you've got to pay 10% of your net take home pay in your health debt repayments. So it's actually quite a bit of money. I mean, it's one, you know, one 10th of your overall salary, particularly for those people who are earning an income above that amount, it can be actually quite big. But on the other end of the spectrum, you know, the government doesn't expect much. If you are earning, say between 46 grand to about 53 grand, then you'd have to pay about 1% of your repayments each and every single year, which is really good because it means that you get to keep more of your paper for yourself and not share that with the government to repay your loan. But I think what they've done is they've increased the scale. So the more you earn, the more you pay back your loan faster and the government gets their money back. And it's actually a really positive thing when you think about it because what the government is trying to do here is actually recycle those dollars to you know, lend them out to more and more students so they can receive an education so you're doing your part, actually helping the government increase more spots for studying for this units.
Blaize Pengilly 25:01
Awesome. Well Dan. Thanks for the breakdown on HELP debt. I will go and unpack my kayak because I who knows if you can go six anytime soon to avoid my enormous helped. Now if you've tuned in every week or even if you just listen this morning and you thought, a podcast presented by way money, what's way money? What are they talking about? Well, we're here to tell you what it is. So Dan, what exactly is the money?
Dan Jovevski 25:33
Blaize way money is a financial wellness platform that helps you understand your money better. You can connect your accounts from all your different institutions like the big four banks and smaller banks, even things like superannuation and share trading accounts to get a unified view of your money in one place. And what's even better is that you get to access your credit score. Also, it gives you the ability to receive insights from other family members on the way many community feed where you can get insights about deals and discounts and how other people going about their budgets. So if you haven't checked it out, please go to the Apple App Store or the Google Play Store and download it. And the app is absolutely 100% free.
Blaize Pengilly 26:13
Also because you're listening to the podcast, we have a special referral code for you. So if you download the way money app, and you type in podcast, in the referral code, you'll get $5 on sign up and we'll plant a tree to celebrate the way money app I use it dang is that we both love it. and supporting us by downloading the app and sharing this podcast with your friends and family is a way to keep way to accents happening and means we can keep coming back to you each week and bringing you meishan about money. Today just jumping in with a quick note before today's guest joins us. Today's guest is from Yodlee and Yodlee is affiliated with way money. Yardley powers the way money app with apps and connections. We hope you enjoy the interview. another pop quiz for you. What is my favourite word to follow the word open? Saturday, babe Come on. Seriously, you can get this one.
Dan Jovevski 27:24
I was gonna say chip packet. But then that doesn't start with a B. Oh, of course.
Blaize Pengilly 27:34
come on, Dan. You should have known and you being the finance expert, I thought you would have come up with open banking because it's been in the news quite a bit lately. And it is our topic of discussion today with our guest. So today's guest is a business leader with deep FinTech experience. He's worked with clients across Europe, the US and the Asia Pacific region. He's passionate about enabling businesses to use data and technology to deliver better results for their customers. He's the country manager of Yodlee, and of the leaders in data aggregation. He joins us now via the internet. Welcome, Tim Poskitt. Hey, going, Tim. Hey, guys, very well. Thank you. Nice to be here. How you doing? Excellent, Tim. Thanks for joining us, Tim. Now, Tim, for those who haven't heard or don't know, what usually is me? What is it that you do?
Tim Poskitt 28:30
Sure, yeah. I'm happy to go into that in more detail. So for those who don't know, Yodlee is a platform with power, a number of cool innovative apps, you probably guys will have heard of some of them both locally and globally. So we power a number of apps to give consumers better insights into their sort of financial well being and their financial health. For example, some of those might be PayPal Venmo is a couple of well known brands locally, you guys would have heard of such as raise their roundup app, and then also a few other PFM tools locally, which are using our services. And PFM is personal financial management. Is that right? That's correct. Sorry. Yeah. Sorry. I should have said that. Yeah. We're headquartered in Silicon Valley. We've been in the Australian region for over 12 years. But yeah, we're a global organisation, and we work very closely with the FinTech ecosystem in Australia.
Dan Jovevski 29:24
That's awesome. Tim and in terms of FinTech is is is is joining together of finance and technology. And it feels like that's exactly what you had lead. Does that, Tim, we've heard a lot about open banking, or as the government likes to call the consumer data right. Now, I think the awareness for a lot of people listening is probably very low about their point. What is open banking, and how will it change the way that Australians manage their money?
Tim Poskitt 29:50
Yeah, sSure Dan Australia's going through the as we call the open banking journey at the moment and you know, top of mind for a number of people like yourself and other large financial service organisations and other countries around the world have been through the open banking journey. There's some differences between the different sort of regimes in the UK, the US different parts of Europe, for example, but you know, what is open banking? In a way? How does it matter to me, you and Blaize, and everyone on the high street? Ultimately, it's about giving the consumers better access to their own data? So how can I control my data that I have? And you know, what is that? For example, I've got a mortgage with an existing large financial institution, or I've got a credit card with challenger bank, or I've got a personal loan, but what is the rate, for example, that I'm paying on that? Could I be getting a better rate? Should I be looking at something else? And not everyone has, you know, access to that information? So it's really about giving the consumer better access to that to their own data? And ultimately, it's about giving them better lifestyle options. And, you know, it isn't just about banking services, it could be about utility bill, their energy bill, you know, is there a better rate for them out there? Can they can they, you know, save 50 bucks a week, which will make a big difference to a lot of people. So it's about giving them control of their own data and greater transparency about what they're doing at the moment.
Dan Jovevski 31:16
Yeah, that's pretty, pretty amazing. So to Tim, to just tell us how practically, this would work for a lot of consumers, because I think a lot of people listening are probably thinking to themselves, oh, I haven't checked my mortgage. Right? I don't know what my personal underwriting is one of those things gets in their bank statement that I don't even look at. And we did a survey recently, we uncovered roughly about 50% of people either don't and what their rate is, or haven't checked for quite some time. And I think that actually represents a large, broader way that Australians typically go about looking and managing their money. How will open banking practically work? So for example, we'll get this data from, say, my main bank that I currently bank with, and then that can, I can authorise that to be shared with other providers, is that correct?
Tim Poskitt 31:58
That's correct. And so you see, 100%. So you have so down, what happened is main bank that he would use on a day to day basis, but you know, Dan's not happy with it, or he's shopping around for him to then provide the content, the access to, to, you know, what is it stands on information, to then near the financial institution, who would then grant that access, so that access would then be granted, would then be provided to the different financial institution with again, hopefully giving down a a better product that was more suitable to him. And ultimately, you know, hopefully saving where he could, you know, save and that money could be used for something else, it could be used, you know, seven for his children's education, it could be, you know, investing into a long term saving funding can be put into a charity, whatever that might be.
Dan Jovevski 32:46
That's amazing. Yeah, I think that it's gonna show a lot of promise in terms of removing the friction from the process of a lot of individuals who may not know, where they currently stand with their finances and making it easy to consider other options, which is almost like the Holy Grail. Look, Tim, the Australian Government has initiated this program, could you give us a bit of history about making in terms of how this was formulated by the Australian Government, where we are now and where the future is gone? Sure. See, as you say, was formulated by the Australian Government, it has been known as the consumer data, right. And like everything, sometimes it happens, the government, it doesn't always happen as quick as everybody would always want it to be.
Tim Poskitt 33:29
You know, there are, you know, like every government in the world, So currently, the program is run by a government body, without going into sort of too much detail, it's in the process of being changing government bodies. So he's actually been moving from the actual seats of the competition committee to the Treasury. And with that has come a couple of delays in the process. And it's, it's working really what we call a phased approach. So the ability to for the larger institutions to share their data. And you know, with with that would come personal loans, mortgages, credit cards, the regime has taken a phased approach. So Phase One, two and three years domain timelines are working towards and the big banks are currently going through that phase approach. And as you can imagine, you know, working with such a large organisation, such as the CBA, the Westpac of the world for them to share, which is a significant amount of information on that customer base has come with some technology, technology challenges, and and that sort of being worked through at the moment. So we're still working through that. And you know, it's good that the government has got fully behind this and what everybody wants in the ecosystem is a vibrant ecosystem to provide a better competition to the end consumer on the high street. But ultimately, some units will be taken a bit longer than then a few people wanted and we'll be we'll be forecast at the beginning. But yeah, you know, He has definitely seen with some of the stuff that's come up in UK and other countries around the world as well. Excellent.
Blaize Pengilly 35:04
Tim, I'm really interested, I'm still trying to wrap my head around exactly how this works. So you say that having access to their data will benefit consumers. And I think that's really great, because Dan and I have talked about this quite a bit on the podcast, and is that we often find ourselves paying the lazy tax, which is, you know, the financial burden of not shopping around and negotiating a better deal on your utilities or your, on your banking products, or whatever it is that you have. How will open banking affects the banks? And will they get any benefit out of it? What's it going to look like for them? And will they have to become more competitive once consumers have access to more data and can see that they might be paying the lazy tax, and they could be getting a better deal? How do you think that will play out? On the other side?
Tim Poskitt 35:50
Yeah, Blaize I think we're all definitely guilty of some lazy tax history and an eye on two of the years, I think, ultimately, it the banks are going to have to add time to their game, right. So they're gonna have to really find the product. That's right, for the end consumer. So I think they're gonna have to, because there's greater transparency. So you know, for example, and individuals paying, you know, two 3.3%, on our home loan, but you know, there's challenges and there's new fintechs exciting at the moment now that, you know, that's, for example, is less than 2%. So, I think they're definitely going to have to change that product offering to the end consumers, that certainly gonna have to make it much more personal. Otherwise, you know, I think they're definitely at risk of losing a lot of customers. And, you know, you can see that with a huge growth of it is not just challenger banks, but challenger fintechs, in the ecosystem, both, you know, locally and globally, that that's the case. And, you know, we know, in Australia, we're sort of, we have our big financial institutions have a pretty good technology, when I think you compare them to different some countries in the world, you know, I think some of the acts on financial literacy we get here in the region is from the UK as well. But, you know, certainly a lot compared to other countries around the world. So I think ultimately, banks are going to have to change what their product offerings are to make it more personal, otherwise, they're ultimately at risk of losing, you know, a lot of customers.
Blaize Pengilly 37:21
Tim, you mentioned before that open banking has been used elsewhere in the world, how has it impacted other markets? And what's the rollout looks like?
Tim Poskitt 37:28
Sure. So we're sort of we've been through this a few times across the world, you know, most recently, the one with the the UK, and, you know, the UK is had a different regime, in comparison to say, the US Australia, and you know, that they the UK regime has been a bit more narrow focus, as opposed to what the Australian regimes I think, you know, Australia has taken some of the learnings of what's happened around the world and really tried to hopefully make their regime you know, the best the best of everybody and try to, you know, be a be a thought leader in that. So the UK, about two years ago, had their regime implemented into the UK with the top 910 institutions through the large top banks in the UK, I think they've got a, you know, pretty significant take up. And that's taken from IE, to the end consumer. But then also, you know, we've seen lots of new use cases that have been created from open banking, for example, you know, for organisations helping, you know, different financial management tools, or different people working in the broader payments, ecosystem, or even people that ability to pay their rent. So I think we've definitely seen some, you know, newly established ways to help consumers in their journey. And then also, you know, organisations that are sort of found new solutions to go to market with sort of what we're seeing in the UK and throughout Europe. It's pretty amazing.
Blaize Pengilly 39:02
How do you think open banking will impact consumer trust? Because obviously, in Australia, we have the big four, which have the lion's share of the market. And then there's a lot of other Neo banks and smaller banks and sort of non traditional lenders that are, especially over the last 10 years come into the market. Do you think that consumers will start to trust these smaller, lesser known banks, or less known brands more? Do you think that it will really have a huge impact on the Big Four? How do you see open banking affecting consumer trust levels with credit providers?
Tim Poskitt 39:35
Yeah, I think, again, you know, you compare this a lot, I think, to the UK model, they're probably the top 24 months ahead of us. And they also have a pretty similar banking market where you've got, you know, a big for bank smoking in the UK, controlling around you know, 80% of retail deposits and mortgages, for example. And as somebody who's lived in various parts of the world, I think the world trillion before banks are pretty at the forefront of technology. And I think, you know, during the, during the GFC, they, you know, that weren't impacted like many parts of the world. And I think they've used that time pretty, pretty well to improve some of their core technology compared to other parts of the world. So I know that from personally having a bank account in, in the UK, and for example, how did I even access that account in the UK, which sounds crazy, I actually used to have a pin and a pin and tap while actually helps, you know, get out of my car and stick it into a machine and actually access that account, which is just, you know, crazy in today's age, which I think, you know, people do trust that their existing banks and their big four banks, I think it's a, it's a legacy, it's a legacy thing, I think of, you know, you think the mom, the dads, the grandparents of the world, you know, they've all, you know, generally you have a bank account with the organisation that you did, since you were a child. So you think about, you know, who you first were, when your mom, your dad, you opened yourself a savings account, when you were 15,10 years old, even a lot of people don't change on that. So with that comes a lot of trust throughout your life. And I think they have maintained that trust. But I also think, because of what's happened in the last few years, and those, you know, definitely in Australia with the Royal Commission, and you know, some of the insights there that, especially when you look at the superannuation world and see really what, you know, some of the the organisation's some of the practices, which they've applied, I think, that certainly damaged the trust and the brand of a lot of those organisations. So I think, to the challenges, you know, the market is, is right for them to come in and execute, which is easier said than done. I mean, there's there's been lots of activity recently in the last couple of years in Australia, both from a consumer perspective, but then also from a business lending. So if you're a, you know, small business, and you're a cafe, and you need to, you know, small working capital facility, that's just now a lot of choices in Australia, for small businesses to do that, which is, which is great. And, you know, they don't want to go to a big pool bank, you know, why it'll take them six days to process an application or, you know, three weeks to, you know, as opposed to doing it online and getting your answer within, you know, 30 minutes. So there's certainly the customer service and the ability to say, yes, you can have that particular loan or no, you can't quicker is certainly a massive opportunity. But I think there's been a few lots of new events in the space the moment and I think, you know, it's certainly to gain the trust with the organisation, then then then you come in a stronger brand loyalty with those consumers. And I think that that will take time. So I don't think it's gonna be overnight somewhere where, you know, everyone moves to a, to a non for Big Bang. But I certainly think that there's this growth and the changes are coming.
Dan Jovevski 42:55
That's really interesting. And especially given the fact that now the barriers to entry have been reduced for all these new FinTech companies to come to the market, like who would have thought even five years ago that we would have been talking about having roundups on our phone via our apps, putting our superannuation to other providers, and being able to see with transparency about where our money is being invested in how we can allocate our superannuation to things that we care about, which is, you know, something that we wouldn't have thought about even five years ago, but just looking to the future, Tim, you know, where do you say, look, fast forward, let's just say 10 years, what does the world look like for everyday people in Australia, in terms how they're going to be going about managing the money, their financial affairs and their life? Give us a sneak peek?
Tim Poskitt 43:42
Yeah, I think it's definitely changing. Right. And I think COVID the, you know, it's, it's terrible what is happening across the world in many, many countries. But I, I think a benefit has come from that is a lot of the companies have had to improve their customer experience and their technology. So, you know, the there's companies now in the world, you know, where you can buy bitcoin on your phone, you can buy stocks and shares on your, on your smartphone, you know, and everything is smartphone accessible. But I think, you know, the, you know, when I was a kid, I used to go to the bank branch, probably sounding older than I actually am but I actually used to go to them in, in Yorkshire in the UK, where, but I think and, you know, my parents will do that today. But I think, you know, clearly, we're moving, everything will be online. And I think, you know, people's ability to change, organisation will be much easier. So I think, you know, some people you know, say, hey, there's a better savings rate or Hey, you know, there's a cool product I could get to but you know what, it's all just a bit too hard to switch. You know, who likes calling that customer service center who likes you know?
Blaize Pengilly 44:56
Tim Poskitt 44:57
Exactly. So you know, I hate it. I think most of my friends and family hates it. So it's certainly something that you avoid. And I think it all just gets in the too hard basket. So I think, you know, I think they'll be making it much easier for the consumer to then swap products and services. But then I also think, you know, the average consumer, I think, in Australia has around two to three bank accounts. So I think there's electricity out around that. So I think we'll definitely be having, you know, more accounts and more with different financial institutions. But I also think we'll move into a world where, if you're having a round of app, or you've got a savings, or you want to invest in something, again, I think that'll all be done from a different, you know, product and service. But I think, you know, 10 years time, I think, I think it'd be the most different world than we are now.
Dan Jovevski 45:47
Hmm, that's amazing some of the points that really resonated with me, Tim, and you're aging yourself and Blaize might outdo us all, but you know, if I think about the sort of, you know, people in high school now, or you're just turning 18, I mean, young kids these days are their expectations about what they want out of their own financial institution, or how they go about their life is going to be completely different to generations beforehand, where they don't want to be sitting on hold and waiting for people to tell them what to do, they want to be in control of that entire process. And that's, that's the one thing that really, I think resonates from our conversation today is that it gives us more control about how we can navigate our own financial lives and making that really easy. And we talked about this concept of self driving money, you know, wouldn't it be cool to live in a world where you don't have to worry about where your money is going and whether or not you're getting the best outcome. And that automatically being routed to making sure that your money works for you in a really automated way. So you don't have to think about, am I getting the best deal? Should I be saving money here or there automatically happen? So I think there's, there's a bright future ahead. And what you've talked about today, Tim, certainly feels like Australia is moving ever closer in that direction, which is exciting.
Blaize Pengilly 46:59
Tim, it really sounds like in 10 years time, your vision of how open banking will work out, will really remove a lot of friction for when it comes to changing products. And it just reminded me of, I remember opening a bank account when I was in my teens, and I had to go in and line up at one of the big four. And I was in the line for so long. And it was so hot in peak summer in Perth, that two people collapsed in the line, not one but two people collapsed in this insanely long bank one. And it was so painful. And then to think a couple of months ago, I switched to a new bank, and all I had to do was download an app. And then three days later in the mail, I had a card in my letterbox to see the transition that was it maybe 10 years apart, to see how easy and how much easier it was with technology and how much friction was removed in that time. And then to have open banking roll it out, to see where it moves to in the future and how pain free it will become for the consumer is is pretty exciting. I'm excited to see how it how it pans out.
Dan Jovevski 48:02
Tim, there's a lot of data, it sounds like promoting open banking and consumer data, right, this looks like it's going to be everywhere. talk and talk to us about how security we managed and what consumers rights when it comes to their own data.
Tim Poskitt 48:15
Sure, yeah. I mean, everyone ultimately wants to get a better product or service or you know, wants to say that, you know, that finding a mortgage, but ultimately, it's got to, you know, that the data or solely will allow will it will drive and empower that there's a number of ways of the consumer can share the data in a sort of an open banking and online banking way. I think ultimately consumers will have a, there needs to be a better education around the security and the safety of that data to the consumer, to get them comfortable to do so. And we've seen that in the UK where, you know, the depth and banking again, great, lots of use cases, and there were lots of benefits the end consumer, but ultimately it was about helping them be aware of the security and the safety of that data. So, you know, again, you Dan will have full control of that. So Dan has an existing account with a an institution that he wants to swap banks, he wants to swap products, you know, Dan is in control of that, he will then you know, provide access and provide the consent flow for the organisation in which he's selecting to start a new product with but rather for Dan will have full control and security of that. And at no point in time, will the institution or the new bank which Dan thinks you can get a better product from have access to that without Dan providing that consent, but
Dan Jovevski 49:57
that 's awesome, well Tim really exciting and I think one of the other Things that we've also heard about is that the shred government is looking to release a dashboard that allows us to manage our consumer data on information. So this will hopefully allow individuals to see where their data is going how it's being used, either revoke consent. So if you've given data to another company that you may not want to continue sharing with, you be able to easily switch that off. And I think that's really awesome in terms of putting the consumer at the front and centre of owning the right data, controlling it, and making sure it goes to the right people with their explicit consent, which is absolutely amazing, given everything that's happened in the data industry, particularly social media over the last 10 years. So I'm glad to say the government is talking about this and making the consumer protections and security, really something in the consumers interest as opposed to the other way around.
Tim Poskitt 50:53
Yeah, I think that's great. And I think the government is, you know, it's really taking feedback at the moment on the industry. So we're in regular conversations with the government at the moment, in regards to some of our thoughts and things that we're seeing the market, something that we're seeing that work well, and not so well, in other jurisdictions. So I think it's definitely a consultation process with the government. But, you know, as we've mentioned before, it probably taken a little bit longer than everyone would like, but I think, definitely some, having some controls and security around that is definitely the key focus for the end consumers.
Blaize Pengilly 51:27
Awesome. Tim, just before we wrap up, I'd love to know if there's any unique insights or information you've been able to gather from data from Yodlee?
Tim Poskitt 51:39
Yeah, I mean, ultimately, we Yeah, we we monitor this regularly. And we check, you know, from some of the insights of the consumers that were the common high for working with in terms of their spending patterns, and what is people spending more, obviously, you know, during COVID, I think everyone can say, their, their spending habits change, as you, you know, the there was no dancing in the in the weekend play that you mentioned. But certainly, I think everyone's food, food takeout bills have certainly gone up in the recent recent weeks and month, but I think, you know, on a serious note, there's been yet been lots of changes in, in people's financial well being, I think, you know, you've only got to look at, you know, what's going on in the us with some of the government, you know, support and grants there. And, you know, and also in both the UK and Australia, but I think we're seeing, you know, a lot of people, you know, during the recent times, it's a much harder time to people than it than it was pre pre COVID. And that seemed a long time ago now. So I think the certainly, people's spending habits and behaviors are certainly changing. And I think, you know, people are, you know, more online services, you know, I think people especially in whoever they are, you know, more online shopping more. Certainly not going in person to stores, and especially in an area where you know, you don't want to be in close contact a lot of people, I think people's sort of spending habits and behaviours are certainly changing.
Blaize Pengilly 53:06
Yeah, that's definitely something we've noticed in our research as well, which has been pretty interesting thing. Particularly travel, transport, and the amount of amount spent on alcohol affected. I think I saw it. I think I saw in the news the other day, Australian spending on booze went up by $2 billion in COVID. Maybe it's million, I will fact check that and put it in the show notes. But Tim, thank you so much for joining us today. That was really, really insightful, very interesting learning all about open banking. If our listeners want to find out more about Yodlee or about yourself, where can they go?
Tim Poskitt 53:42
Sure. Thanks, please. Yeah, feel free to find me on LinkedIn, Tim Poskitt and for Yodlee yodlee.com or find it on LinkedIn.
Blaize Pengilly 53:53
Awesome. Thanks so much for joining us, Tim. It was lovely to chat.
Tim Poskitt 53:56
Great. Thanks, guys. Thanks, Ben. Thanks, Dan.
Blaize Pengilly 54:06
Thank you for tuning in to another episode of We talk sense. It was a pleasure having you join us and we will be back next week. As always on Monday morning.
Dan Jovevski 54:15
If you liked the show, please do us a favour and share the episode with a friend or family member.
Blaize Pengilly 54:20
And if you've got any topics or feedback for us, or any questions or something you'd like us to cover, we would love to hear from you. You can hit us up on our Instagram at Getwemoney. We'll catch you next time.
Dan Jovevski 54:31
Blaize Pengilly 54:32
The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.