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Open banking could spur competition, but fintechs say Canada's moving too slowly

Advocates for 'open banking' say it'll save Canadians money but is taking too long to be implemented.  (David Donnelly/CBC - image credit)
Advocates for 'open banking' say it'll save Canadians money but is taking too long to be implemented. (David Donnelly/CBC - image credit)

Federal efforts to bring "open banking" to Canada are being welcomed by players in the industry — but there's also criticism that, after years of waiting, any changes may not come fast enough to encourage innovation or allow smaller financial players compete with larger institutions.

Open banking lets consumers or business customers share personal and financial information between approved banks and other companies. For example, letting a budgeting app collect transactions from multiple bank accounts and compile them for you, or price comparison software that analyzes your shopping habits.

Recent moves by Ottawa are "definitely a game changer," according to Parna Sabet-Stevenson, a lawyer specializing in financial services and tech with the Toronto law firm Gowling WLG.

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She says promises in the latest federal budget would eventually allow Canadians to share their financial data safely and eventually let companies large and small to access customer data from competitors — encouraging them to come up with new products and services.

That access would only be with permission, and secure and standardized across Canada, which Sabet-Stevenson says addresses concerns raised by major financial institutions in the past.

Vedran Lesic/Radio-Canada
Vedran Lesic/Radio-Canada

Federal politicians have been mentioning open banking since at least 2018, but last week's budget finally earmarked actual cash — $1 million for the Financial Consumer Agency of Canada by 2025 to begin preparing to oversee a new framework and system for open banking, with an additional $4.1 million over three years for the Ministry of Finance.

"Open banking means that you and not your bank are in control of your financial information," said Hanna Zaidi, Toronto-based vice-president with the Canadian fintech Wealthsimple, which has been long advocating for open banking.

Sarah Palmer/Wealthsimple
Sarah Palmer/Wealthsimple

Zaidi says, with open banking, a Canadian applying for a financial product, such as a mortgage, may not have to manually collect all of their information for an application.

All of a consumer's needed data, such as bank balances and existing credit limits, could be securely compiled through the promised open banking framework, which could also make it easier for Canadians to switch banks or compare financial products than it is today.

Lengthy wait

But fintech companies are frustrated that Canada has lagged behind similar countries in rolling out open banking, such as Australia.

"WTF is going on, Canada? Like, why can't we do this?" said Andrew Dale, an executive with business-focused financial company Float.

Dale points out Australia took less than two years from first announcing a review in 2017 to legislation in 2019 for similar principles, and it provided nearly fifteen times the funding.

Brent Lewin/Bloomberg
Brent Lewin/Bloomberg

During their long, decade-plus wait for open banking, some in the sector have blamed Canada's sluggish pace on the big banks trying to keep new up-and-comers out of the market.

"I don't think they have an interest in it going fast," said Julien Brault, whose company makes the budgeting app Hardbacon.

"There's no political price to pay if open banking is not implemented," he said, but it would "change everything" for budgeting software in Canada if an open banking framework is implemented.

Without it, apps like his must use slower, less reliable methods to collect financial information from its users.

Many rely on "screen scraping" to access data from larger banks, which typically involves a customer providing their banking passwords in what the federal government and some financial institutions describe as risky and less secure.

Dale, with Float, says he believes it should not be that difficult to implement regulations that give consumers the ability to choose who accesses their financial data and when.

Anis Heydari/CBC
Anis Heydari/CBC

"We have six banks in this country who need to do something along with the government. It's not like the U.S., where we have thousands of institutions," said Dale.

CBC News asked the Canadian Bankers Association (CBA) if it, or its member institutions, is opposed to speeding up the process.

The CBA did not directly address this question but in a written statement said it strongly supports moving ahead with a "consumer-driven banking framework."

"Banks strongly support a resilient, consumer-centric framework that realizes the benefits of robust, secure and consumer-driven data exchanges while appropriately managing the risks created by the interplay between more in-scope data, newer players in the system, and increasingly sophisticated fraud," it said.

Sabet-Stevenson speculates that, a few years ago, the large banks had "no desire" to move toward open banking as they didn't want to share customer data.

But she also says she believes they've since shifted their perspectives.

"We are way past that," she said.

LISTEN | Is open banking safe?:

Open banking could also let large and small banks identify consumer trends and target more customers, according to Scott Talbott, executive vice-president of the Electronic Transactions Association, a trade group representing the payments industry.

"As you share your banking data, another bank might say, 'Hey, we noticed that you have a lot of deposits and we offer a product that might be better for you or better suited for you. Please come over to us.'"

Even if it comes slower than some might like, Andrew Chau says open banking would benefit consumers by letting companies like his better compete with the big institutions.

"With increased competition, naturally you will get better pricing when it comes to bank fees, when it comes to the fees you might pay on borrowing money, or even just earning higher interest rates on your savings," said Chau, co-founder of Calgary-based Neo Financial, which offers the Hudson's Bay credit card and a range of other financial products.

Switching institutions

Chau says consumers now have a lot of difficulty switching financial institutions because they have to switch payments and alert financial partners manually, and may have difficulty moving other investments or loans.

His perspective is that Canadians face direct financial consequences from being "five or seven or eight years" delayed compared to European countries or Australia.

"It's consumers that are paying a higher price as a result of slower timelines," said Chau.

Banks could also collaborate more easily once a legal and technical framework is set up for open banking, says Lynnette Purda, professor of finance with the Smith School of Business at Queen's University in Kingston, Ont. .

"There's a definite movement from a perspective of this being competition to co-operation and collaboration and partnership," said Purda.

But even with partnerships, industry players such as Neo's Chau or Wealthsimple's Zaidi indicate the benefits will need government involvement.

They both compared the introduction of open banking to when federal regulators obligated Canadian phone companies to allow consumers and businesses to keep existing phone numbers.

"Apply that same sort of porting of your data to your financial services information," explained Zaidi, implying that regulation is needed for open banking, or established players will not facilitate it.

"It's going to force financial institutions to compete for your business. It's going to lower costs. It's going to be a platform for innovation and new use cases," she said. "That's what we're hoping."