Absence of open banking sparks warning from TD
TORONTO A lack of action on open banking could be forcing Canadian consumers to choose between convenience and security when it comes to third-party financial service providers, according to the chief digital officer of one of the country’s biggest banks.
“For me, there’s a problem,” Rizwan Khalfan, Toronto-dominion Bank’s chief digital and payments officer, said in an interview at the bank’s technology day last week. “That’s an unfair trade-off.”
So-called open banking is a framework that would allow consumers and businesses to let third-party companies access their financial transaction data via secure online channels known as application programming interfaces (API). This could allow companies to design products and services with the data, as well as possibly enable easier account-switching.
The feds have been weighing an open-banking framework since 2018, but have yet to release the results of a consultation process launched in January.
In the meantime, the financial technology industry has been developing quickly, and apps that use “screen scraping” — a process whereby customers hand over their login credentials to a third party, which then retrieves their financial information — have grown in popularity. This process can violate the terms and conditions of a bank account and could lead to increased risk of identity theft and cyberattack, according to a Senate of Canada committee report.
Khalfan called this an “emerging problem” in Canada that must be solved.
TD is proposing the government pursue an open banking model that is along the lines of the industry-led model in the United States, where TD already has the necessary technology in place.
“We’ve built out our APIS and we’ve actually gone live with them in the U.S. in the last month,” Khalfan said. “Because we are North American, we leverage our investments on both sides of the border, so we are planning to use the same API gateways in Canada.”
Khalfan expects a third-party certification process in Canada, but TD is proposing an independent assessment organization that would be overseen but not run by regulators. Everyone in the open-banking “ecosystem” would have to follow industry standards, which would be encouraged by regulators.
“There’s enough industry data standards available that we can actually leverage one of them and then tailor it to our needs in Canada,” Khalfan said.
He said they are working with regulators and financial tech firms, and added sorting out standards could be done “in months.”
“An industry-led solution has the potential to be a lot faster,” Khalfan said.
An alternative to TD’S vision is the model that has been implemented in the United Kingdom, where a regulator found bigger banks did not have to compete all that hard for business, which left consumers paying more for their services.
Open banking was part of the recommended solution, and the U.K.’S biggest banks were mandated to make personal and small business account data available to third parties via APIS. Standards were set by the bank-funded Open Banking Implementation Entity and the Financial Conduct Authority approves third parties.
By contrast, TD’S proposal would see a customer engage with a third party provider or app, which would then — usually via an aggregator — send a request to the bank for the consumer data. The bank would ask the customer if they consent to sharing the data, Khalfan said. If so, the data would be sent through industry-standardized APIS.
Khalfan’s concerns appear to echo feedback the government received in meetings with around 200 stakeholders earlier this year, as detailed in documents obtained by Postmedia following an access-to-information request.
“An area of consensus among stakeholders is that elements of open banking are already happening in the market and there needs to be consideration of how this activity is managed,” says a memo sent to an associate deputy finance minister ahead of a March meeting with the lead of Australia’s open banking review. “Stakeholders are not of the view that the status quo (redacted) is tenable or desirable.”
The documents also suggest that regulatory questions were more of a hurdle than technical ones.
“Stakeholders were also broadly of the view that the technical aspects of open banking did not represent a significant challenge in moving forward,” it says.
There needs to be consideration of how this activity (elements of open banking) is managed.