Canadian open
Liberal move could make banking cheaper and more accessible
The Liberal government’s pledge to table legislation around “open banking” this spring will bring relief to fintechs and credit unions struggling to compete with the Big Five banks, while also making banking cheaper and more accessible, advocates say.
In Tuesday’s federal budget release, the government revealed a framework for the implementation of open banking, also known as consumer-driven banking, which will enable Canadian consumers to own and share financial data more securely and seamlessly between financial institutions.
Supporters of open banking — largely the fintechs (financial technology) and smaller players in the industry — say that it leads to better product offerings in the market as well as more transparency around fees and rates, which boosts competition.
To Alex Vronces, executive director at Fintechs Canada, “this is the most substantial update we’ve gotten” since Ottawa first started talking about open banking in 2018. Canada is a laggard in the space as the technology already exists in 49 countries.
Out of the $61.2 billion in new spending over the next six years, $65 million will go toward lowering banking fees and improving Canadians’ finances, of which $5 million will be allocated to open banking.
The government also expanded the mandate of the Financial Consumer Agency of Canada (FCAC), the industry’s consumer watchdog, to oversee its introduction in Canada.
“Open banking is not really about helping fintech companies,” Vronces explained. “It’s about putting Canadians in control of their financial information, so that they can choose what’s best for them.”
“What better regulator to pick than one that is independent of the industry and one that has at the heart of its mandate this motivation to protect the rights of consumers?”
The new framework will also help 10.9 million Canadians currently being served by credit unions, said Sabena Sandhu, policy manager at the Canadian Credit Union Association.
“Being able then to have access … to more robust data will help credit unions provide financial advice and products and services that are that much more tailored to their members needs,” she said.
But critics of the framework fear that it will take a long time for changes to be seen.
“Although we are happy with the enhanced addendum and focus on open banking within the budget, we are disappointed to see the lack of commitment to a timeline for open-banking implementation,” Andrew Chau, CEO at Neo Financial, said in a statement.
Meanwhile, Canada’s large banks have been generally quiet about the new framework.
“The banks enjoy a very profitable ecosystem the way it currently exists,” said Mike Rizvanovic, banking analyst at Stifel Canada.
“If you have that dynamic where people have better information and transparency, it doesn’t necessarily mean that the banks lose market share as a group, but they have to compete more with each other to give customers the best rates.”
The Star contacted CIBC, RBC and Scotiabank, who deferred comments to the Canadian Bankers Association (CBA), and BMO and TD, who did not respond before deadline.
“We look forward to collaborating closely with government authorities, regulators and crossâsectoral partners to provide Canadians with safe access to innovative products and services,” the CBA wrote in a statement.