Open Banking in Canada

By February 28, 2020 October 27th, 2020 No Comments

What is Open Banking?
Consent | Governance | Data

As the concept of Open Banking gains traction around the world and consumer demands for increased convenience, price for value, data privacy, and transparent consent drive a shift to new ways of doing business, it’s only a matter of time before open banking fundamentally reshapes the industry and creates a great impact on consumers and the financial services ecosystem. One could almost use “Consumer Directed Finance” as the name of this initiative in Canada. Banks in Canada will change the way they work with one another and other players, e.g. Third Party Providers (TPPs) in the financial services ecosystem. It will also be a major transformation for customers as the banks, financial technology companies (FinTechs) and other service providers (TPPs) will be able to introduce innovative products and services based on open access to data. This new construct will allow all parties involved to design a business strategy that requires Application Processing Interface (APIs) to share data with consent. Best practices around the world ensures regulatory compliance, secure data exchange and, as said, customers’ overarching control of their own data.

Open Banking in Canada: Context
Canadian FinTech adoption rate hits around 50%, while other countries, like China and India, at 87% rank at the highest rates of adoption, and UK above 70%.

In addition to conventional consumers, the underbanked segment of the Canadian population can also benefit from Open Banking, through the creation of new products and services that better cater to their specific circumstances. By allowing access to personal financial, transaction data, and non-traditional data sources, financial services providers can generate a more holistic financial picture of an individual. This may grant access to services that would have otherwise not been available, perhaps delivered by new entrants, that enhance the consumers’ ability to manage their finances and bring new consumers into the financial services arena.

Customers in Canada, as in the rest of the world, want more from their financial institution than basic services -and definitely delivered with much less friction and more digitally, such as checking accounts and access to credit. They want integrated offers that enhance their life, with brands that mean something to them. In addition to retail customers wanting more from their banks, entrepreneurs, corporate and commercial customers also seek more innovative processes and better customer experiences with seamless, easy-to-use solutions.

What it means for Canada
Open Banking will be a major shift for the Canadian financial services landscape, and will have many and different impacts for the key stakeholders in the ecosystem. While FinTechs have been around for years, at the fringes of the banking system, access to the banks’ data, processes and infrastructure would help them build products and services on top of what already exists. Technology giants are also likely players in a world of Open Banking. The big banks in Canada are in different stages of maturity regarding digital transformation. Some tend to rely on their own proprietary solutions, whereas others are partnering with FinTechs and TPPs in general. It will be interesting to witness the pace in which the landscape changes, mostly due to the emergence of neo-banks in the country -rapidly acquiring clients in the same pool as traditional contenders -but with a killer app.

Open Banking in Canada is driving greater competition in the financial services sector, that will not only improve consumers’ financial wellbeing, but also create a virtuous circle. The benefit for the Canadian financial services ecosystem will bring new consumers (previously out of the traditional target market), and enhance the overall experience as well as the broader economy.

The benchmark for financial services are currently outside the industry: people expect their experience with mobile apps and online services to parallel their interactions with the likes of Uber, Netflix and other Big Tech companies -that raised customer expectations for good.

The race is on! Who will be the front-runners in this contest? Stay tuned!

FinConecta enables digital transformation leveraging Open Banking as a business opportunity
Successful open-banking innovation will require an ecosystem of alliances, vendors and partner organizations – both inside and outside of financial services – each delivering a part of the integrated proposition.

FinConecta: Where finance and technology meet.

– Jorge Ruiz, FinConecta Founder & CEO