Aug 23, 2022

Open-banking predicted to launch in Canada by 2023, targeted to SMEs

As FinTech continues to shape the future, open-banking becomes more probable for companies.

Madison @CAKE
Madison @CAKE

Most, if not all of us, are familiar with transactional banking applications, offered on App Stores everywhere. Download your mobile banking app and with the click of a button, you’ll instantaneously be offered easy access to all the convenient features the apps hold. 

However, a less familiar concept worth exploring is that of open banking. Open banking is a FinTech term defined as a system that provides third-party financial service providers access to consumer banking and data through the use of application programming interfaces (APIs). Its main goal? To reshape the competition and consumer experience of the banking industry. 

While America and Canada have lagged behind other nations that have implemented open banking regulations, they’ll shortly see their time. Canada is currently working to enact an official open banking system, which is likely to be phased in by 2023. 

 As the global economy continues to adapt in new ways, the digitization of information grows more advanced. By opting for open banking, Canadians will be better poised to recover from the COVID-19 pandemic, maximizing their control over financial information and services.

The concept of open-banking requires customers to undergo a process called screen-scraping, which requires them to provide third-party FinTech companies with access to their log-in credentials. From there, clients can use open-banking to improve their credit process, to authorize third-party payments or to even switch banks without physically being present. 

With open-banking, the technological capabilities are endless. In an article, Roy Kao, board member for the Open Banking Initiative (OBIC), explains that ‘automation and AI will advance functionality across accounting programs and softwares, like QuickBooks and Sage, while improving security [across the board].’ 

To ensure that open-banking remains accessible for as many Canadians as possible, all federally-regulated banks should be required to participate in the first phase of open-banking. Additionally, credit unions and other entities that meet accreditation criteria should be eligible to participate upon volunteer-basis. The initial scope should be targeted towards small and medium enterprises, otherwise known as (SMEs), in hopes of facilitating post-pandemic recovery and better access to capital and credit. Due to complications with stakeholders, the government is recommending a phased approach to open-banking, one in which an appointed lead would work with governance to design an effective, beneficial trial of open-banking itself.

In order to assure complete success with open-banking in Canada, Canadian policy makers should focus largely on clearly defining roles in the open-banking system, educating consumers and striking the right balance between enabling data sharing and maintaining consumer privacy.  

However, while open-banking may provide benefits in the form of convenience for some, others are still skeptical about data breaches and resulting liabilities to financial institutions. As the trend of open-banking comes to be, so does a rise in consolidation across the FinTech industry. If anything, the big financial players are recognizing that they need to offer up more innovative strategies to attract more customers. This drives banks and other large competitors, like Mastercard and Visa, to up the ante, diversify their businesses and gear up for change—fast. 

Like anything that is new, open-banking certainly brings risks. And while the Canadian financial services are closely watching the conversation about open-banking, they also acknowledge that eventually, the move to open-banking will become unavoidable. Clients will be forced to adapt to the system, which will soon serve as the ‘new normal’, while businesses will be able to use open-banking to gain a significant edge over their competitors. While this innovation is both advanced and thoughtful, it sheds light on the major importance of advocating for privacy, accessibility, and protection, assets that all Canadians want encompassed in their banking, and all Canadians deserve, no matter the case. 

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