WHY DOES CANADA NEED OPEN BANKING?

More than four million Canadians hand over their banking passwords to fintech companies today to carry out financial tasks online like applying for a loan or mortgage, connecting their accounts to a budget app or opening a bank account. We feel secure when doing this because we trust our banks and we want a more personalized, digital banking experience that empowers us to do more with our money. Today’s model for achieving this is screen scraping, which restricts growth in commerce and comes with inherent risks that expose us to vulnerabilities and data breaches. Open banking changes this, offering a more secure and innovative framework for the financial industry to evolve and empower us in managing our finances.

Open banking allows fintechs and financial institutions to leverage consumer-permissioned banking data, which means that the changing financial needs of consumers can be met with personalized financial apps. The advantages of open banking in Canada go far beyond consumers, however. Open banking creates a trust framework for consumer-directed banking to evolve, and it also:

  • ensures transactions between a consumer, bank and a fintech’s financial app  are transparent and protected by dispute-resolution protocol
  • engages regulators to ensure that safeguards are in place to protect consumers, banks, fintechs and businesses
  • establishes regulatory standards that qualify and govern fintechs and their use of consumer financial data
  • sets a foundational standard that advances our financial ecosystem and strengthens our economy
  • fosters domestic and global growth for our financial industry

CONSUMERS

Open banking equals more choice, control, security and potential for Canadians to be empowered with their finances. It places their unique and diverse financial needs as a priority and offers:

  • simple access to personalized financial apps and services
  • complete control over data like passwords, credit scores and transaction information
  • opportunities to be incentivized to share data through monetization or other points of value
  • recognition that they are valued as the life force of the financial services industry
  • confidence and trust in using regulated financial apps and services

BANKS

Canada’s financial institutions (FIs) are already trusted custodians of banking data, so they’re well-positioned to meet customers’ changing expectations in an open banking framework. Opportunities for FIs include:

  • monetization of enriched consumer data
  • customer-centred focus to create personalized solutions, extend reach and secure market share
  • a dynamic ecosystem of innovative vendors and partner organizations built upon consumer-permissioned data
  • efficiencies that can help reduce operational costs
  • new financial models protected by a strong regulatory framework to reduce risks such as fraud and money laundering

FINTECHS

Open banking is an opportunity for innovative fintechs to build new financial service products and create key partnerships with FIs for long-term growth. Benefits of open banking for fintechs include:

  • access to enriched financial data to better understand what drives consumer behaviour, anticipate what people want and empower them with personalized financial apps
  • key collaboration with other regulated players in the financial services industry to remain competitive and relevant
  • opportunity to expand reach nationally and globally
  • new financial infrastructure business models for technical service providers (payments, gateways, data and regulation)

GOVERNMENT

Open banking is a framework for innovation that protects Canadian values and rights, including privacy, human and democratic rights. Within this framework, federal and provincial governments can ensure:

  • privacy laws reflect the changing realities of the digital economy
  • compliance with the PIPEDA Act
  • compliance with  OPC as the co-regulatory and enforcement authority
  • strict regulation of fintechs, including the power to impose fines for non-compliance
  • a robust model for digital identity is incorporated
  • a trusted mechanism is in place for dispute management between consumers, banks and fintechs

INDUSTRY EXPERTS

Experts in key areas of banking, regulation and compliance are a crucial element of the open banking ecosystem in Canada. Ideally, they will work together with governments, financial institutions and fintechs to establish and maintain:

  • a legal framework that puts privacy issues related to consent, transparency and accountability at the forefront
  • a central registry of fintechs permitted to access the open banking technical standard
  • the consumer, bank and fintech dispute management system
  • a market-driven regulatory framework that nurtures industry growth while protecting consumers and banks

THE END OF SCREEN SCRAPING

When we agree to use a fintech’s third-party financial app, we say it’s ok to access our banking data. Fintechs do this by using an unregulated third-party service via a process called “screen scraping”.  Screen scraping essentially scans and scoops our banking history so that we can get the personalized experience we’re after, but it leaves our data vulnerable to hackers. Also, once we’ve given permission, we can’t control how long these third-party apps can continue to monitor our bank accounts.  

Open banking changes all this by offering a secure banking ecosystem that allows us to selectively share our financial transaction data with regulated fintechs that fit our unique needs. We get to choose who can access our financial data, where they can use it and when they can no longer see it.

Open banking in Canada is truly a force for good. It is ultimately consumer-directed banking and it puts people where they should be when it comes to their finances: in the driver’s seat.