Canadian Banking is hoping to introduce open banking, which would give Canadians more control over their financial information and let them decide who they share it with.
The federal government has planned to introduce new laws next month to bring open banking to Canada after it had been delaying it for years. Open banking is being seen as a way to increase competition, change how payments work, and create a financial system that focuses more on people.
What is Open Banking?
Open banking is a new type of banking that is set to be introduced into the world of Canadian Banking. In this type of banking, third-party financial services can access your banking and transaction data from banks and other financial institutions using special tools called APIs.
It helps connect accounts and share data across different places, such as banks, financial institutions, and other services.
Helen Child, founder of Open Banking Excellence, described open banking as a way to create a more inclusive, fair, and open society.
In open banking, people can choose to share their banking info with other companies. For example, in budgeting or money management apps, where you can see all your accounts and cards in one app.
Open banking has many new uses, like easier payments, automated accounting, and managing business finances. With open banking, lenders can see a person’s banking info directly, which means people can use it to improve their credit, such as by showing they pay rent on time.
Helen said this banking process helps include more people in finance and makes data more democratic.
Abhishek Sinha, national banking technology leader at EY Canada, said that this process is consumer-driven banking by the government and is part of a mission to give people more say in the data companies collect about them.
He added that it is a big step for society, considering what is happening in developed and many developing countries.
Concerns about the New Addition in Canadian Banking
Canadian banking is set to introduce the open banking system, but the new system has raised many concerns.
Some are doubting how much and how fast things will change, even though this could disrupt the entire current system.
Sinha says that despite security measures, it will take effort to convince Canadians to trust the system and its new players.
He added that gaining trust in Canada would be very tough for the fintech community and would be the biggest challenge faced by the Canadian banking system.
Bogdaneris, Head of Canadian Banking at Scotiabank, said on an investor day that the system did not see much use when it started in Europe in 2019.
Bogdaneris, who used to work at ING in the Netherlands before joining Scotiabank last year, said that they were ready and prepared for it; however, it did not happen as expected. Bogdaneris compared it to the same response received by Y2K.
According to data published by Open Banking Ltd. in the UK, when open banking was introduced in 2018, only about 11% of people were using open banking last June.
In Canada, where banks are more concentrated and the banking culture is conservative, adoption will probably be slower, according to Marc-André Pigeon, assistant professor at the Johnson Shoyama Graduate School of Public Policy.
Pigeon says that banks have a lot of power, so it will be tough for others to break into the Canadian Banking System. He added that the government is mostly focusing on the change’s security benefits.
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