Open banking is a tremendous opportunity for Canadian financial technology companies.
It’s also a tremendous opportunity for Canadians to take control of their financial information.
There’s demonstrable demand for open banking services — millions of Canadians are already taking advantage — but what is open banking and why should we move urgently toward it?
In essence, open banking allows customers to control their financial data.
It allows them to direct banks to share the financial data they choose and for the duration that they choose through the use of secure technology.
It’s not just for paying bills.
A person, for instance, could use an open banking app to provide financial history information to a landlord, which would be especially useful if the would-be renter doesn’t have an established credit history in Canada.
A small business might use open banking to provide financial information to a potential lender to more easily process a loan.
And people in remote communities could use it to access a wider range of financial services than are locally available.
As the Senate banking committee stated in its June 2019 report, Open Banking: What it means for you, Canada needs a robust open-banking framework to ensure financial firms can develop tools that safely and securely meet Canadians’ needs.
An open banking framework would not only enable choice for Canadian banking customers — it would also spur the development of home-grown financial technology companies.
Canada has an opportunity to play a leadership role with respect to open banking in North America. Our financial services sector has already proven to be among the safest in the world; creating a regulatory environment that is conducive to open banking would promote growth and innovation in the fintech sector.
There’s a proven market for this technology.
Approximately 4 million Canadians already use open banking apps. Third-party apps can help people with their budgeting or aggregate account information if the customer uses more than one bank.
The issue now is that many of these apps are not secure and there is little to constrain app providers from exploiting users’ data for their own ends.
Canadians should be able to have confidence that their personal information is being held securely and being used only for purposes that they have authorized.
There will be many challenges to be overcome.
The United Kingdom’s experience with open banking suggests consumers are slow to trust fintechs with their data. Nearly nine of 10 consumers were willing to share information with banks but less than half would share with fintech companies.
While recognizing that trust can only be built over time, the evidence we heard suggests the government should create a registry of accredited third-party providers and establish an “innovation sandbox” so fintechs can safely test and develop new open banking technology.
In this vein, we also recommend updating Canada’s existing privacy legislation.
The Personal Information Protection and Electronic Documents Act is decades old and grants the Office of the Privacy Commissioner very few coercive powers. We want to give that office teeth so that it can make orders and impose fines on organization that fail to live up their privacy obligations.
We were pleased to note that the federal government has already been consulting on the merits of open banking. An advisory committee was struck in 2018 and Finance Canada released a consultation paper in January 2019.
Time, however, is ticking away — and our study has revealed actions that can and should be undertaken now.
For example, the government should immediately begin funding consumer protection groups to educate consumers on the benefits and risks of open banking in its current form.
The government should also designate the Financial Consumer Agency of Canada as an interim oversight body. It already has a mandate to supervise federally regulated financial institutions and it ensures compliance with federal financial consumer protection provisions.
Witnesses from the agency appeared to be well informed about the challenges of open banking; it already has a strong public advocacy role and responds to complaints.
The evidence is clear: Open banking is here to stay. Consumers are demanding it. Fintechs are lining up to provide it.
It’s time for the federal government to act.
Senator Doug Black, Q.C. is chair of the Senate Committee on Banking, Trade and Commerce. He represents Alberta.
Senator Carolyn Stewart Olsen is deputy chair of the Senate Committee on Banking, Trade and Commerce. She represents New Brunswick.