Getting real with open banking in Canada
May 28, 2019
Elina Mattila, Executive Director, Mobey Forum
The disruption to conventional banking is being felt as much in Canada as in other parts of the world. Traditional Canadian players are starting to see the erosion of revenue streams such as overdraft charges, insufficient fund charges and interchange fees. They also face likely future competition from technology giants, such as Google, Amazon, Facebook and Apple (GAFA), together with other tech firms, as well as an increasing need to deliver enhanced, omnichannel experiences to consumers. But a new era is coming to the True North – open banking.
Although consumers around the world are yet to demand open banking services, adoption is expected to ramp up quickly as awareness of the benefits of services like account aggregation and bank-direct payments begin to enter the public consciousness. Traditional banks have a chance to get ahead of the curve, by acting now to take advantage of the new service and revenue opportunities on offer. In time, these services could well offset many of the disruptive challenges banks currently face.
However, most banks are not set up to make the shift, technically, operationally or culturally. For decades they have kept their customers money, and later on, data under strict lock and key, so opening up their systems and customer data to third parties is bound to feel both scary and unnatural. It’s already happening in Europe, where legislation to encourage competition and innovation has required banks to adapt quickly. Whilst European open banking is yet to mature, Canadian banks can learn many lessons from the evolution of the market across the pond.
How can banks address challenges?
The launch of the recent Government consultation on the merits of open banking signals that open banking regulation is on the horizon. Banks may be hoping for regulation that mandates the sharing of data but still allows for the industry to determine the standards of how this is to be achieved. It would create an environment for collaboration, leaving Canada’s thriving fintech industry and banks to work together to figure out the best approach to creating APIs.
Banks opening their systems to third parties could provide the centralised platform needed for new data-rich services and solutions that could be instrumental to creating a world-class open banking landscape.
Whether it’s driven by consumer demand, made compulsory by regulation or simply by the next stage in the natural evolution of the industry, open banking is coming, and with it a whole raft of challenges and opportunities. It’s high time to move the conversation on from hypothesising and get real about the strategic options available. We all agree that open banking will signal a new era for financial services. If it’s done right, it has tremendous potential for the whole ecosystem.
BOX OUT: Will open banking be regulated?
An Advisory Committee on open banking was established in September 2018 and launched a public consultation on the merits of open banking in January. It sought opinions on the role that regulation should play in open banking implementation, together with the benefits and risks. This was an important milestone and a signal that some form of regulatory action may be taken in Canada in the near future.
Exactly what this will look like remains unclear but there’s a good chance that, it will be a blend of the second European Payment Services Directive and more industry led approaches seen in other jurisdictions, and it would focus on the frameworks for security, liability, and privacy issues surrounding consumer data.
The EU model for open banking, however, is both prescriptive and very tightly regulated, which has resulted in banks struggling to meet its deadlines. In the UK, the Competitions and Markets Authority (CMA) mandated that the nine biggest banks, also known as the CMA9, collaborated on a common API. This hasn’t been as successful as first hoped. As the Canadian Bankers Association said in its response to the consultation, open banking models should be assessed through a ‘uniquely Canadian lens’.
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