U.K. fintech trailblazer doesn't see smooth open banking transition
If Canadians expect the financial world to change overnight with the dawn of open banking, they are going to be disappointed.
That was one of the lessons Kristo Käärmann, founder and chief executive of London-based payments company Wise, learned during the U.K. adoption of the protocol, which aims to enable third-party financial service providers to compete more directly with big banks.
Wise, which now has 10 million customers globally and processes more than $7 billion in cross-border transactions monthly, was among the early fintech movers in the U.K., one of the first jurisdictions to pursue open banking and a country that is often held up as a model for Canada. But even the U.K. didn't get things right the first time around, Käärmann told the Financial Post in a recent interview, and it took a decade for Wise to get where it is.
“It's going to be slow and the first iterations are not going to work,” he said. “What we definitely found in the U.K. (is) it takes a few iterations ... because the banks are a bit rushed to get something live and they have a deadline.”
Käärmann said early U.K. open banking systems were riddled with bugs and the application program interfaces (APIS) — the connections allowing for financial data to be shared between parties — did not function properly. “It's going to work, but it's not going to be amazing out of the gate. I hope that the regulator recognizes that,” Käärmann said. “I hope that they don't give up just in the first iteration.”
Open banking is a loose term for a regulatory framework that essentially allows consumers to choose how to share their own banking data with financial service providers and move their information from one institution to another. It has been discussed for years in Canada, but is finally expected to come to market in 2023.
Last year, the federal government released its long-awaited blueprint on open banking, which laid out a framework of recommendations aimed at keeping consumer banking information safe and introducing a “purpose-built governance entity” to implement the open banking model.
More recently, it named Abraham Tachjian, the former director of the financial services arm at PWC Canada, as the new open banking lead in March.
The sector has seen growth: Major payments players like Montreal-based Nuvei Corp. closed a Us$833-million initial public offering in September 2020, which was the largest ever fundraising for a tech company on the TSX at the time, according to Accenture's 2021 Canada Fintech report.
Wise has been operating in Canada since launching its “send money” feature here in 2016.
It has also been operating as a money services business that is registered with the Financial Transactions and Reports Analysis Centre of Canada and advises regulators as part of the Bank of Canada's Retail Payments Advisory Committee (RPAC), a gathering of industry experts on the retail payment services landscape.
After initial challenges, the U.K. model crossed the five-million-active-user milestone in February, according to the U.k.-based Open Banking Implementation Entity. Canada can expect the same multiphased process, Käärmann said, but the benefits when it comes to increased competition in the financial services industry are worth it.
“I would say the biggest problem for financial services globally ... comes from a lack of competition,” Käärmann said. “So, in our space, very clearly the reason why banks are able to charge whatever is because there's no competition.”
He noted that some countries required banks to provide pricing information on their products, which gave consumers more insight.
While open banking has not led to incumbent banks being usurped by upstarts, Käärmann said it continues to make inroads.