US Executive Orders Affirms Certainty and Urgency of Open Banking, Canada needs to
Prioritize or Risks Losing Global Competitiveness
As Canada begins to recover from the pandemic, we can reflect on the ways in which consumers, small businesses, and other stakeholders struggled over the past year. The start of the pandemic saw millions of Canadians lose their jobs with the unemployment rate reaching 8.1%. Consumers struggled with access to lending products and at risk consumer segments like the underbanked and unbanked faced even larger challenges. Aside from Canadian consumers, small businesses endured having to navigate the shift to digital, redefining their relationship and how they service their customers, and rethinking how they can support their employees. Government support programs, such as the Canadian Recovery Benefit (CRB) and traditional lending products, were not enough to address the needs of Canadian small business owners. As of February 2021, Canadian small businesses have collectively taken on $135 billion of additional debt load to survive the pandemic as well as seeing 200,000 small businesses shuttered permanently. Although the pandemic created its own unique issues, in many ways the pandemic only exacerbated and accelerated existing issues faced by Canadian consumers and small business owners
when it comes to their financial services and products.
Countries such as the UK, Singapore, Australia, and Brazil that have an established Open Banking frameworks, or the global movement that provides consumers with ownership and control of their own financial transaction data, were able to be far more agile in their response in helping consumers and small businesses during the pandemic.
“Canadians are uniquely positioned to adopt and learn from the Open Banking experience and regulatory proposals being implemented by its international counterparts. The recent US policy announcement should be a clear indicator that the time is now for Canada to act and accelerate Open Banking.”
-Tara Wilson, Board Member, OBIC and Chief Operating Officer, Income Access, A Paysafe Company.
Open APIs have allowed FinTechs and financial institutions to quickly build products and services that have helped small businesses access loans faster as well as help consumers with personalized, convenient and secure solutions tailored to their needs. The Open Banking Implementation Entity in the UK, or OBIE, reported in May 2021 that there were 834 million successful API calls and that 50% of UK small businesses use Open Banking.
Other benefits of Open Banking include:
Financial inclusion for those marginalized and unbanked due to established financial service practices.
Increased choice and simplicity for consumers in selecting products and services from a number of FIs by providing anonymized access to financial data.
Consumers pay lower fees due to increased transparency and reduced friction.
Increased access for small businesses to innovative tools needed to grow in a digital age.
Real data for small business owners can give them control, reduce financial stress and simplify time consuming administrative tasks.
Reduction in fraud related to payments.
New API models can offer the ability to obtain enriched data from Fintechs to gather deeper insights into consumer habits.
Increased market competition.
Foster innovation and entrepreneurship.
In Canada, we continue to fall further behind these first to market players in creating and implementing our own Open Banking framework.
“Canada needs to take action today, and not tomorrow! The US executive order is an important signal for a government mandated Open Banking framework in Canada in order to spur both innovation across the financial sector but also introduce real consumer protection and data rights.”
- Hanna Zaidi, Board Member, OBIC and Director of Regulatory Research & Development,
Wealthsimple
On July 9th, 2021 President Biden signed an Executive Order on “Promoting Competition in the American Economy” that will help push important aspects of Open Banking forward in the United States as well. Specifically, the Executive Order includes a provision that strongly encourages the Consumer Financial Protection Bureau (CFPB) to issue regulations that would make it easier for Americans to access their banking data and transfer it to other banks or financial service providers.
The Executive Order outlines the foundation for an Open Banking framework including:
Encourages the CFPB to issue rules allowing consumers to download their financial transaction data and control access.
Enabling an easier and more affordable way for consumers to change their financial institutions by requiring financial institutions to allow consumers to take their financial transaction data with them to a competitor.
Increase opportunities for small businesses by directing all federal agencies to promote greater competition through their procurement and spending decisions.
As the United States joins the growing list of countries that have taken action towards their development of an Open Banking framework, the Canadian financial sector is still looking for guidance from the federal government. A recent Globe and Mail article highlighted the urgent need to address competition in Canada stating that "Canadian industries are on average twice as concentrated as their U.S. counterparts, and a study shows that levels of consolidation have risen over the past 20 years, a trend the authors attribute, in part, to ‘weak antitrust legislation and practices and increased barriers to entry.”
“The recent Executive Order from the Biden Administration provides critical regulatory certainty and essential guardrails to establish consumer data rights and portability and promote market-driven competition, setting down the cornerstone elements for Open Banking.”
- Roy Kao, Board Member, OBIC and FinTech Executive and Advisor
The OBIC believes that Open Banking Legislation will increase the consumers' choices for customized, suitable, and accessible financial service products. Many other OECD countries have published guidance on Open Banking frameworks, which have helped the evolution of their regulatory environment and adoption. The release of the report from the Open Banking Advisory Committees will be a critical next step in helping the Canadian financial services industry and its stakeholders understand and support the Government for an Open Banking framework in Canada. The uncertainty around Canada’s Open Banking
framework is also causing major delays of the crucial investments from abroad and within Canada for innovations and advancements in technology, services, and product development in financial services.
“Excited for the US ecosystem as a new Executive Order focused on driving competition and consumer data rights. Open Banking can be a force for good to Canadians and our SMEs, let’s learn from the US and act now!”
- Michelle Beyo, Board Member, OBIC and CEO & Founder, FINAVATOR
President Biden’s bold move towards an American Open Banking framework is a crystal clear sign to the speed of innovation and change underway across financial services around the world. As ecosystem stakeholders, we can attest that these same disruptions are also occurring across Canada; industry players such as traditional financial institutions and FinTechs are currently negotiating bilateral data agreements outside of the competitive goals of Open Banking, and leveraging screen scraping without the use of guardrails to protect consumer data or provide recourse for the worst-case scenarios. Open Banking will
help to create a more competitive environment for new innovative firms and provide Canadians with more choices and lower costs.
“The US policy announcement introducing Open Banking-type guidance accelerates US financial sector investment into Open Banking innovations. Canada should follow with its own guidance.”
- Kevin Morris, Board Member, OBIC
We continue to be concerned with the lack of progress in 2021 for Open Banking in Canada. We saw the last round of industry consultations as a promising signal from the Canadian Government and believe that the release of the highly anticipated report is the critical next step. The Executive Order that gives nod to a US Open Banking framework leaves Canada in a smaller pool of countries that have not released guidance on Open Banking to their financial sector. We see incredible potential in a post-pandemic and
accelerated digital economy for Canadian consumers and small businesses through the secure financial data sharing enabled by an Open Banking framework. Canada is less competitive globally in financial services innovation without federal guidance in this area.
“With the signing of today's Executive Order, the White House has taken a bold step towards bringing open banking to the US. Although the Executive Order aims to promote competition across a broad range of sectors, financial services is definitely on the list, with a specific nod to data portability and ownership. According to the fact sheet linked below, the order specifically states customers should be able to ‘easily take their financial transaction history data to a new bank’ and that it ‘encourages the Consumer Financial Protection Bureau (CFPB) to issue rules allowing customers to download their banking data and take it with them.’”
- Eyal Sivan, Board Member, OBIC, Head of Open Banking for Axway and Podcast Host of Mr. Open Banking
The OBIC Board of Directors and its stakeholders along with the Department of Finance share a common objective to create a competitive and innovative financial sector in Canada. As advocates and experts in Open Banking, we believe that the only way forward is through collaboration and commitment. By working together, sharing insights, and continuing to have important conversations, the implementation of a Canadian Open Banking framework will be the catalyst to unlock Canada’s future as an innovative
global leader in financial services.
To learn more about Open Banking and to download our Open Banking Manifesto visit our
website: https://obicanada.ca
Works Cited
https://www.ctvnews.ca/business/canadian-small-businesses-rack-up-135-billion-in-debt-to-survive-pandemic-report-1.5324475
https://www.cbc.ca/news/business/cfib-survey-1.5882059
https://www.openbanking.org.uk/api-performance/
https://www.fintechfutures.com/2020/12/half-of-uks-small-businesses-now-use-open-banking-says-obie/