Why Open Banking Hasn’t Come To Canada Yet

Open banking has taken the world by storm, bring much needed innovation to the age-old banking industry! For those unaware of what  this concept is:

“Open banking is a banking practice that provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs). Open banking will allow the networking of accounts and data across institutions for use by consumers, financial institutions, and third-party service providers.”(1)

In my opinion, Open banking can be simplified to one word – Options. Unfortunately, these options are not coming to the financial services industry in Canada fast enough.

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As per an article (2) posted in the Financial Post on June 24, 2021, “opening banking is a regulatory framework that would allow consumers to determine how to share their banking data with financial service providers, or move their information from one institution to another.”  There are several factors that may be contributing to the snail’s pace of progression in this vast country including the following three as outlined within “what is Open Banking and why hasn’t it come to Canada yet”:

• existing “monopoly”norms barring entry;
• lack of home-grown FINTECH players;
• lack of motivation by the government to prioritise open banking in Canada.

As a Canadian, I certainly agree that we have very limited options to choose from. Canada is not unfamiliar with monopolies and oligopolies as they abound in many sectors, including telecommunications, utilities and financial services, where even less than five competitors exist. These organisations and institutions have stipulated the terms of service for so long that any shift of control (real or perceived) is being looked at critically. As per the author, these critics allege that the regime change to open banking could put privacy at risk by exposing large financial institutions to cyberattacks.  This is a fallacy though as these banks already name Cybersecurity as the greatest threat to their companies and the wider financial system (3).

Introducing regulation and controls to permit open banking in Canada will only strengthen the industry and motivate Canadian firms to develop products and solutions for the local population.  The only option available at this time is screen scraping, whereby consumers share the usernames and passwords from their banks to allow applications to access their history.   This activity is susceptible to fraudulent and financial crime activity and may even be in breach of banking agreements the user has with their bank.  The information  collected may or may not even be collected or stored in Canada. The risks involved stifle growth and development in this industry. Although the industry has grown significantly in the past few years, Canada should not be relying on foreign players to to meet the needs of Canadian consumers who want digital solutions.

Ultimately, the progression of open banking in Canada relies on a firm commitment to the development of a proposed regulatory framework and fast tracking the review and industry consultation process required to implement the approved framework. Finance Minister Chrystia Freeland  has received report however there is no confirmation of the status of this review. Understandably, there are many facets to assess surrounding the open banking framework including governance, consumer control of personal data, privacy, fraud and security.  However the first phase of the review started in 2019 and the lack of clarity in the future of the ecosystem has and will continue to have adverse affects on the industry.  One significant loss to the marketplace is the recent decision for global frontrunner, Revolut to exit the Canadian market.

Is the seemingly slow process a result of the influence of the big banks standing in the way of progression; effects of a passive population content with accepting the offerings they are presented with; lack of a developed Canadian FINTECH industry driving change; or simply a regulatory and government structure focused on other priorities. It could be one, none or many of these factors – all that is certain is that while the rest of the world continues to make leaps and bounds to revolutionize the banking industry, Canada waits for a report to be reviewed.

(1) https://www.investopedia.com/terms/o/open-banking.asp
(2) https://ncfacanada.org/what-is-open-banking-and-why-hasnt-it-come-to-canada-yet/
(3) https://www.nytimes.com/2021/07/03/business/dealbook/hacking-wall-street.html

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