Advantage Australia

As the first country internationally to implement economy-wide data standards, Australia is well placed to influence the direction of digital trade and ensure the global adoption of important protections. By Jane Hume.

As a popular Chinese saying goes: ‘Third-rate companies make products, second-rate companies make technology, but first-rate companies make standards.’

It’s a mindset that certainly underpins China’s development strategy. Technical standards are a key pillar of the Belt and Road Initiative, and, through a 25-year standards plan reportedly in development, China seeks a leading role in global standards-setting.

Although literature on standards-setting barely figures in the canon of development economics, China’s focus is far from novel. Indeed, throughout the modern age, growing industrial and technological economies have used standards-setting as a tool to assert their industrial dominance.

The development of rail—the great enabler and bellwether of industrial development—brought with it fierce disputes over competing track gauges. In the postbellum US, the North moved rapidly to establish the ‘standard gauge’, forcing the South to follow suit in the interests of trade growth. The inability of the Australian states and territories to come to an equivalent consensus, even after Federation, would become a century-long red-tape disaster—and an unfortunate emblem of competitive federalism.

Amid the post–World War II economic boom, the Soviet Union and its allies effectively isolated their populations from Western television by adopting the SECAM (sequential colour with memory) television encoding standard, as opposed to the PAL (phase alternating line) and NTSC (National Television System Committee) standards prevalent in the West. This was a soft-power play in more ways than one—it also allowed Soviet propaganda to dominate the television content of emerging allies in Eastern Europe and Africa that adopted the standard. The consequent use of PAL decoders by East Germans to view West German television broadcasts would become known as Republikflucht via Fernsehen—‘defection via television’—and, as SECAM would ultimately lose the standards war, the East German authorities became powerless to police it.

Global standards are an example of what game theorists call a ‘coordination game’—in which all players achieve a Pareto efficient outcome by adopting the same strategy. And when a country takes the lead in determining a global standard, it has an opportunity to select the global strategy that best suits its own interests—in practice, providing its own firms with greater regulatory certainty, speed to market and export opportunities than their overseas competitors.

The motivation for standards coordination has much in common with free trade agreements—an area where Australian governments of the past decade have shown prolific leadership. Yet, while there are strong and established coordination bodies for international trade, the world of standards is far more muddled. From food to telecommunications to consumer electronics, duplication of standards work abounds—the ISO (International Organization for Standardization), IEC (International Electrotechnical Commission), ITU (International Telecommunication Union), IEEE (Institute of Electrical and Electronics Engineers) and IETF (Internet Engineering Task Force) are among the plethora of similar-sounding bodies. In the age of data, it’s perhaps surprising that no settled centre of data standards yet exists.

Despite the Covid-19 pandemic, the Australian Government pressed ahead with the launch of the Consumer Data Right (CDR) on 1 July 2020 with the implementation of ‘open banking’. The crux of the CDR is the mandating of data standardisation across the Australian economy—and, in doing so, catalysing a revolution in the way Australians harness their own data to make consumption decisions.

The CDR has been designed principally as a tool to empower decision-making, correcting for information asymmetry experienced by consumers by allowing them to authorise secure access to their own data by accredited third parties. It begins in banking at a time of immense financial stress, when Australians are seeking to adjust their financial affairs in unprecedented numbers—switching or refinancing their mortgages, revising their investment risk appetites, or looking at new credit or savings products as the pandemic takes its toll. The most immediate use case is to allow consumers to provide their data to competitors or comparison apps in order to give them accurate information about exactly how much they can save by switching service providers—and to reduce the time, cost and complexity of doing so.

Open banking involves the implementation of uniform standards by Australian banks in collecting, storing and transmitting data. Crucially, those standards also extend to the conditions governing the use, de-identification and destruction of that data, and the manner and extent of consumer consent required for such use. The work to determine what standards are most appropriate is being replicated industry-by-industry as the rollout progresses among other consumer sectors affected by information asymmetry: energy, telecommunications, insurance, superannuation and more.

As the first jurisdiction internationally to implement economy-wide data standards, Australia has seized a first-mover advantage at a time of heightened global interest in digital trade and cross-border data transfer. With the introduction of the EU’s General Data Protection Regulation (GDPR) and the European Commission’s Revised Payment Services Directive (PSD2), there’s a growing focus on implementing open banking standards in EU nations—and attention to data standardisation in other sectors and regions has followed.

As a result of these emerging regulatory regimes, there’s a strong desire for commonality of consumer-related data practices, particularly in relation to consent. Consent risk—the risk of using data in ways that a consumer hasn’t properly authorised, and therefore opening up a business to potential sanctions—is fast becoming a key issue for digital businesses, especially those operating under the GDPR. These new categories of regulatory uncertainty—in the notable absence of a central international body or forum—have created a policy vacuum that a growing number of countries are looking to Australia’s CDR to fill. Already, a number of Asia–Pacific nations have commenced exploratory work on data standardisation, and see Australia as an exemplar.

The 2017 Foreign Policy White Paper identified Australia’s strong institutions and standards in the financial sector, among others, as a significant soft-power tool. The CDR puts that strength into action and coincides with renewed trade negotiations with key strategic partners—including the UK, after which Australia’s open banking system was partly modelled—as well as the rise of trade agreements specifically targeted at the digital economy, including the recently concluded negotiations with Singapore.

Australia has inherent qualities that render it ideally placed to be the centre of global data standards. It’s a nation built on trade, with strong links to both the established markets of Western Europe and North America and the attractive emerging markets of the Asia–Pacific.

This is nowhere clearer than in the fintech sector, where Australia enjoys a significant demographic advantage that makes it an ideal testbed for Asian fintechs that want to enter Western markets, and vice versa: Australians are digitally and financially literate, have excellent financial inclusion with a banked population of nearly 100%, have very similar demographics to much of Western Europe and North America, and are renowned for the robustness of the regulatory system that saw Australia pull through the global financial crisis in the best shape of any developed economy.

Ours also is an economy that enjoys a strong culture of collaboration between industry incumbents, disruptive newcomers and government. That culture is a critical condition for the successful adoption and proliferation of any standards system, particularly in verticals with high consumer exposure where collaborative regulation is key; and it’s a culture that aspirational standards hubs such as China conspicuously lack.

As Australia’s first minister for fintech, I’m excited about what taking the lead on data standards will mean for the growth of our fintech ecosystem—not just through open banking, but also through the rollout of the CDR in the closely related fields of superannuation and insurance. For sure, it will place Australian-grown companies ahead of the curve in both consumer expectations and business needs—an enviable position as the economy emerges from the Covid crisis. While trying to replicate the scale of Silicon Valley isn’t and shouldn’t be our aim, the predominance of San Francisco in the establishment of the internet age has gone hand in hand with its status as the de facto standards-setter for the internet and digital technology. I’m confident that our consumer-focused tech verticals can emulate Silicon Valley’s success as a standards leader in consumer data.

In my time as minister, I’ve found it striking that our focus on the consumer is a uniquely Australian characteristic. Speaking to overseas audiences about prioritising consumers’ interests in the banking sector has fairly consistently led to either blank looks or proclamations of genius. It’s perhaps more common to hear bankers in other financial centres speak of consumers as an externality rather than a priority—let alone a driver of innovation. Australia’s consumer-centric mindset is in large part the key to our fintech success to date, as well as our predominance in the services trade more generally.

Taking a leadership role in standards-setting presents an opportunity to nudge global industry mindsets down a similar path, for the benefit of consumers globally.

The CDR is our chance to influence the direction of digital trade and ensure the global adoption of important protections, such as consumer privacy, cybersecurity, consumer consent, mutual data-sharing obligations and prudential oversight.

This ripe opportunity carries with it some urgency. The CDR’s benefits for Australian consumers will endure regardless; however, the vast benefits available to Australia as a digital trading leader depend on swift global collaboration. Australia’s first-mover status remains advantageous only as long as another nation doesn’t emerge as a predominant rule-maker.

Just as Australians need to use adaptors when using overseas power sockets, the emergence of alternative global leaders in data standards would place additional burdens on Australian businesses already meeting the requirements of the CDR if they’re forced to plug into an alternative system. Importantly, such alternative standards might not meet the consumer-focused prudential requirements that the Australian business environment should demand.

The creation of the CDR is a world-first achievement that Australians can be proud of. Championed by Prime Minister Scott Morrison in his former role as Treasurer, it has become a reality with the continued support of Treasurer Josh Frydenberg. Its launch in July 2020 followed years of collaborative work between industry, the Treasury, Data61, the Australian Competition and Consumer Commission, the Office of the Australian Information Commissioner and many others.

Now that the CDR is finally up and running, it’s time for Australia to step up and—as the Chinese saying suggests—take our place as a ‘first-rate’ standards-setting economy.

Jane Hume is a Liberal Senator for Victoria and the Assistant Minister for Superannuation, Financial Services and Financial Technology. This essay was first published by APSI in After Covid-19 Volume 3: Voices from federal parliament and has been reproduced with full permission from the author.