Open Banking is a massive global growth trend – As the Scotsman writes the race is on for Open Banking.
But it’s a race where Canada is at the tail end not leading at the front.
A Globe article explores why Canada is holding back on adoption, noting that there is a lack of political will to make it happen. A TD exec says the lack of an Open Banking framework is forcing consumers to choose between security and convenience .
This all has serious implications for the Canadian economy.
Canada has long had an innovation and productivity challenge, and the author observes that without Open Banking regulatory impetus, banks will remain closed and consequently stifle FinTech innovation and growth.
The largest obstacle to improving Canada’s economic growth is the lack of support for policies that encourage and promote innovation.
MoneySense makes exactly the same points, about consumer benefits and the risk of being left behind.
Hence why advocates like Senator Colin Deacon are on a mission to spur Canada to catch up, such as contributing to this Senate report and through regular awareness raising and thought leadership on the topic. He describes it as a matter of urgency that Canada lays out a policy framework akin to Europe and elsewhere.
“Disrupt or be disrupted” sums up the current situation surrounding #OpenBanking (better described as #ConsumerDirectedBanking) in Canada. I believe that big bank reluctance is due to fear of the biz model shift from moats to ecosystems (https://t.co/DRqNbQGwM3). @HarvardBiz https://t.co/DfwTvoWo5R
— Senator Colin Deacon (@colindeacon) October 1, 2019
What is Open Banking?
The term refers as you might expect, to the use of open standards within the banking sector, to encourage and enable better interoperability between the banks, to achieve more integrated consumer services.
Banking Technology explains What You Need to Know, and Michael Gardner provides this excellent overview, highlighting the challenges and opportunities the trend will present, how banks will need to master better UI strategies and the use of APIs. The Open Bank Project lists a plethora of exciting startups pioneering different niches it exposes.
The enabling catalyst is open standards. The Open Banking Implementation Entity was created by the UK’s Competition and Markets Authority to create software standards and industry guidelines that drive competition and innovation in UK retail banking, and they publish the central standards for making possible the API integrations.
Resistance is Futile
It’s adoption in some form certainly seems inevitable. As BankingTech writes the country is Edging towards Open Banking, and the Department of Finance ran a consultation on the topic and published a report – A Review into the Merits of Open Banking.
The Centre for International Governance Innovation asks if Canada is ready for it, citing the lack of a GPDR equivalent presenting a risk for personal data privacy safety.
However despite these concerns a powerful ecosystem is taking shape. While they may not have an Open Banking regulatory framework Canada has a rich industry of digital banking innovators.
Banks like RBC are beginning to pilot API programs to access their data, and startups are emerging. Writing that Resistance is Futile, the Financial Post describes a similar pilot initiative from the National Bank, and Mobeewave a Montreal-based startup that facilitates contactless payments who raised $16.5m in late 2018.
PYMNTS.com writes about Flinks, a startup pioneering a platform that facilitates data sharing between banks and non-bank service providers. Canadian Mortgage Trends explores their capability in more detail. Koho is one example of a Canadian digital challenger bank.
In his review of the State of Open Banking in Canada, Phil Siarri highlights startups like Montreal-based Wealthica, who offers an API-powered investment aggregation platform that allows users to consolidate their investment accounts and portfolios in one simple interface with various reporting functionalities. Similarly PureFacts is harnessing AI and Big Data to power better investment decisions.
Canada’s Open Banking Action Plan
Ernst and Young believes that Open Banking can thrive in Canada, improving the competitiveness of the sector and encouraging better services for tech-savvy Canadians, through building upon and growing an existing, thriving FinTech ecosystem.
There is also a wealth of industry support to make this happen. For example the Holt Accelerator is a prestigious startup incubator specializing in FinTech, and have laid out their own set of recommendations for achieving Open Banking innovation leadership:
“– Start the process and aim towards a co-regulation system.
– Facilitate the standards-setting process. This process will be iterative, involving multiple stakeholders and will extend over several years.
– Identify an open-banking beach-head, such as the merchant market, so that there is a swift acceptance of the new system among a targeted group.
– Encourage regulators to employ or even build technical capabilities, in order to better keep up with technological advancements.”