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

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 con‐ sumers or business cus‐ tomers share personal and fi‐ nancial information between approved banks and other companies. For example, let‐ ting a budgeting app collect transactions from multiple bank accounts and compile them for you, or price com‐ parison software that ana‐ lyzes your shopping habits.

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

She says promises in the latest federal budget would eventually allow Canadians to share their financial data safely and eventually let com‐ panies large and small to ac‐ cess 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-Steven‐ son says addresses concerns raised by major financial in‐ stitutions in the past.

Federal politicians have been mentioning open bank‐ ing since at least 2018, but last week's budget finally ear‐ marked actual cash - $1 mil‐ lion for the Financial Con‐ sumer Agency of Canada by 2025 to begin preparing to oversee a new framework and system for open bank‐ ing, 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 finan‐ cial information," said Hanna Zaidi, Toronto-based vicepresident with the Canadian fintech Wealthsimple, which has been long advocating for open banking.

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 applica‐ tion.

All of a consumer's needed data, such as bank balances and existing credit limits, could be securely com‐ piled through the promised open banking framework, which could also make it eas‐ ier 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 coun‐ tries in rolling out open bank‐ ing, such as Australia.

"WTF is going on, Canada? Like, why can't we do this?" said Andrew Dale, an execu‐ tive with business-focused fi‐ nancial company Float.

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

During their long, decadeplus 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 provid‐ ing their banking passwords in what the federal govern‐ ment and some financial in‐ stitutions describe as risky and less secure.

Dale, with Float, says he believes it should not be that difficult to implement regula‐ tions that give consumers the ability to choose who ac‐ cesses their financial data and when.

"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 thou‐ sands of institutions," said Dale.

CBC News asked the Canadian Bankers Associa‐ tion (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-dri‐ ven banking framework."

"Banks strongly support a resilient, consumer-centric framework that realizes the benefits of robust, secure and consumer-driven data exchanges while appropri‐ ately managing the risks cre‐ ated by the interplay be‐ tween more in-scope data, newer players in the system, and increasingly sophisti‐ cated fraud," it said.

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

But she also says she be‐ lieves they've since shifted their perspectives.

"We are way past that," she said.

LISTEN | Is open bank‐ ing safe?:

Open banking could also let large and small banks identify consumer trends and target more customers, ac‐ cording to Scott Talbott, exec‐ utive vice-president of the Electronic Transactions Asso‐ ciation, a trade group repre‐ senting the payments indus‐ try.

"As you share your bank‐ ing 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 suit‐ ed for you. Please come over to us.'"

Even if it comes slower than some might like, An‐ drew Chau says open bank‐ ing would benefit consumers by letting companies like his better compete with the big institutions.

"With increased competi‐ tion, 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 Calgarybased 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 switch‐ ing financial institutions be‐ cause 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 finan‐ cial consequences from being "five or seven or eight years" delayed compared to European countries or Aus‐ tralia.

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

Banks could also collabo‐ rate 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 move‐ ment from a perspective of this being competition to cooperation and collaboration and partnership," said Purda.

But even with partner‐ ships, industry players such as Neo's Chau or Wealthsim‐ ple's Zaidi indicate the bene‐ fits will need government in‐ volvement.

They both compared the introduction of open banking to when federal regulators obligated Canadian phone companies to allow con‐ sumers and businesses to keep existing phone num‐ bers.

"Apply that same sort of porting of your data to your financial services informa‐ tion," explained Zaidi, imply‐ ing that regulation is needed for open banking, or estab‐ lished players will not facili‐ tate it.

"It's going to force finan‐ cial 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."