Open banking will benefit Canadians if government leads on regulation
Andrew Moor is CEO and President of Equitable Bank
Last month, the federal Department of Finance launched a public consultation on open banking, asking for input from the public and stakeholders. This consultation is kindling a debate that involves many interested parties and stretches far beyond the confines of banking to broader issues of how a modern, digitally-enabled country chooses to evolve and change.
With forms of open banking developing in Europe, the U.K., Singapore, Australia and other jurisdictions, it seems likely that it is coming to Canada, too; a transformation that will bring benefits for individuals and businesses – and the economy.
Open banking has the potential to give Canadians access to their financial data in the manner they want and when they want it, making it easier to perform transactions and deploy fintech tools and services offered by new competitors as well as by the traditional big banks. A foundational element of open banking is the recognition that it puts power in the hands of consumers: We all own our financial data and should be able to use it as we wish.
The Canadian banking landscape benefits from the strength of a well-regulated and sound banking industry that serves the country well. Given the concentrated nature of the sector, the success of a national open banking initiative is likely to lie in a properly regulated initiative that has clear goals of bringing benefits to all Canadians. Open banking’s potential is to raise the competitive intensity of the banking sector that will, in turn, lead to lower fees, higher interest rates on savings and new approaches to all manner of banking services.
PUTTING POWER IN THE HANDS OF CONSUMERS AND BUSINESSES
Under open banking, a customer working with a new financial adviser will be able to provide them with an overview of their investments, credit card records, as well as their bank and mortgage balances without having to share passwords or log-in credentials. Individuals and businesses will be able to set up dashboards that provide a complete picture of all their finances and documents, even if they have relationships with multiple banks and use several different credit cards.
Open banking also has the potential to allow small businesses to better understand their own financial well being, reduce costs and improve efficiency. Small and medium-sized businesses (SMBs) have diverse needs, and open banking can make it easier for them to actively shop for well-priced banking services or access new services. Giving businesses control over sharing their own financial data could reduce multiple days of administrative effort every year. These small changes can make a huge difference to small businesses and, in an economy such as Canada’s, where 97 per cent of total businesses are SMBs, a positive ripple effect can be a significant economic contributor.
As with any change in an industry as complex as banking, there are risks that need to be considered. In the open banking environment, cybersecurity dangers and privacy concerns are certainly matters that should attract our attention.
REDUCING CYBERSECURITY RISKS THROUGH OPEN BANKING
Today, many people who want to have a consolidated view of their financial picture use an approach called screen scraping – which involves sharing passwords – to create this view. Cybersecurity risk clearly exists today in our current screen-scraping world and I would argue that a properly constructed open banking environment, with the right security architecture, has the potential to actually reduce this threat.
While we should invoke a principle that we own our own financial data, we should also recognize that we have the right to control who we share it with. Some of us may be relatively comfortable sharing large amounts of our financial information in order to get benefits from the insight that might follow, while others may choose to share their data with no one. It is a matter of personal values and surely it follows that a country like Canada should adopt an open banking approach that can allow us all to select the approach that we feel most comfortable with.
Many countries struggle to ensure that their financial systems keep up with digital evolution and customer expectations. We are fortunate in Canada that our government is engaged with making the necessary changes, our regulators have the infrastructure necessary to oversee effective transition and our banks have the technical capabilities to adapt to the needs of people that are increasingly looking to manage their financial affairs more effectively.