Canada is in consultation stage - open banking
Canada, though has a well-developed digital banking system is yet to formalize an open banking eco system:
Canadian banks are just getting responsive to open banking albeit initial mistrust over data privacy issues. Some of the leading banks in the country have taken up initiatives to study the opportunities the new system offers and have developed APIs that allow fintechs to access the systems and deliver new products. The department of finance of the country had set up an Advisory Committee on Open Banking to explore the potential and pitfalls of open banking for consumers. The committee had come out with a consultation document in early 2019, which identified the potential benefits and risks of open banking. It is now expected to undertake a wider stakeholder consultation, which is expected to lead to legislative action soon.
However, Canadian banks have not taken to open banking in a way that banks of other countries like Australia or Britain have adopted the system and made significant strides in developing standards and procedures ensuring security of the data and bringing in conveniences for the customers. Canada is placed at the 8th position in the EY Open Banking Opportunity Index, which measured the readiness of 10 different markets around the world to operate successfully in an open banking environment. The Index shows that most individual markets need to strike a better balance between implementing regulatory structures, building consumer trust and encouraging innovation.
The department of finance has said that making it easier for people to let third parties access their banking data could spur providers to offer more tailored products and services, and thus start delivering greater value to consumers. In addition, customers could benefit from greater transparency, helping them to make more informed decisions and better manage their finances.
YET TO DEFINE MODE
It is to be seen whether Canada will adopt a more proactive approach in the immediate future, similar to the UK or Australia, or strictly follow a principles-based regulatory framework. Much of this will also depend on how banks approach the issue - whether they realize the benefits of open banking and initiate action on their own. The country is also awaiting the passage of its big data privacy law, the updated Personal Information Protection and Electronic Doc u ments Ac t ( PI PEDA), whi c h incorporates some key provisions, such as data portability, outlined in the General Data Protection Regulation in Europe.
Studies have shown that just 18% of the country’s digitally active population is using 2 or more services offered by fintechs and only 44% of smartphone users have adopted mobile banking. Baby boomers and older senior citizens still prefer visiting branches and talking to customer service staff face-to-face. But millennials take to banking akin to how they do in other countries although the products and their features offered by banks in the country are not as advanced as in the European or Asian countries or Australia.
SUPPORTIVE OF INNOVATION
One positive factor for Canada is that the country supports innovation and there are several fintech projects that are being taken up. Investments in these projects are forthcoming and there is general support for startups. Canada is ranked third after China and the US for the number of patents filed by its banks and fintechs in 2017.
Meanwhile, several banks in the country have announced individual initiatives of their own. The Royal Bank of Canada has launched an API developer portal to facilitate eligible external software developers, industry innovators and clients to access select APIs of the bank helping them to integrate the bank’s services into their own products. Scotiabank has created the Platform Organization - called PLATO - that develops new services and tools for open banking. The platform is now sharing applications it has developed with the open source software community. While these initiatives are technically not related to open banking, these can be considered good groundwork for creating an open banking ecosystem.
The Canadian Bankers Association has extended support for open banking, stating it strongly supports innovation and competition in the financial services sector and welcomes the opportunity to participate in the open banking consultation.
LEGAL.REGULATORY
The regulators in Canada are now focused on the legal and regulatory environment within which open banking is expected to operate - like privacy, data protection, consumer protection, IT infrastructure, cybersecurity and anti-money laundering. It is to be seen what approach the regulators will take. For example, in the UK, regulators have applied APIs uniformly across the 9 largest financial institutions, making compliance and participation by such institutions mandatory. The UK regulator feels having uniform APIs will ensure an even-handed approach to regulating open banking, and that any risks it presents are consistently managed by market participants. It is still unclear what the thoughts of Canadian regulators are.
While legislation is one way to solve this problem, it is necessary that the industry cooperation and support is imperative for the initiative to be successful. What is important, especially for a country like Canada, is the creation of an ecosystem of alliances of partner organizations – financial services and others.