(Toronto) A long-promised radical transformation of the banking sector could soon be underway, but you may not notice it when it happens.
The changes underway will give Canadian consumers and businesses much more control over their financial data, including who they share it with, under what’s known as open banking.
The federal government has promised framework legislation in next month’s budget to introduce the system in Canada after years of waiting.
Proponents of open banking around the world tout it as a way to boost competition, radically change the way payments are made and overall shift to a more people-focused financial system.
“It’s about having a fairer, more inclusive and more open society,” explained Helen Child, founder of Open Banking Excellence, a platform for supporters of this system.
PHOTO PROVIDED BY OPEN BANKING EXCELLENCE VIA THE CANADIAN PRESS
Founder of Open Banking Excellence, Helen Child
Open banking allows consumers to share their banking information with other businesses. The most common use is to grant access to budgeting or financial management apps and companies, so that a customer can consolidate different bank accounts and credit cards in one place.
Other emerging uses include simpler payments, automated accounting and business financial management.
One of the biggest areas of growth is in credit scoring. Under open banking, lenders would be able to directly access an individual’s banking data, so they can look beyond credit scores. Consumers can also use it to establish their credit score, for example by proving reliable rent payments.
“This promotes financial inclusion,” said Mr.me Child. Data is democratized. »
The model, which the federal government calls consumer-driven banking, is part of a broader shift to give people more control over the data companies collect about them, said Abhishek Sinha, a leading authority of national banking technology at EY Canada.
“This is a social movement and an important social progression, following the example of what is happening in the rest of the developed world and even in many developing countries. »
But even if it is possible to shake up the current system, some are skeptical about the scale and speed with which change could come.
Even with safeguards in place to keep the system secure, it will likely take a lot of work to convince Canadians to trust the system — and new competitors, Mr. Sinha said.
I think it will be extremely difficult for tech finance enthusiasts to gain the trust of Canada; it’s their Everest to climb.
Abhishek Sinha, a leading authority on national banking technology
The system also saw a fairly weak recovery when it launched in Europe in 2019, admitted Aris Bogdaneris, head of Canadian banking at Scotiabank, during an investor day.
“We prepared for it and we tried to make sure we were ready and resilient,” said Bogdaneris, who worked at ING in the Netherlands before joining Scotiabank last year.
“It didn’t really come to fruition. It was like the year 2000.”
Even in the United Kingdom, where this system was launched in 2018, only about 11% of British consumers were using open banking last June, according to Open Banking, which is responsible for implementing the system in the country.
In Canada, with greater banking concentration and a conservative banking culture, adoption will likely be slower, warned Marc-André Pigeon, an assistant professor at the Johnson Shoyama Graduate School of Public Policy.
Banks have so much influence that it will be difficult for others to enter the arena.
Marc-André Pigeon, assistant professor at the Johnson Shoyama Graduate School of Public Policy
More than anything, the government seems to be highlighting the benefits of this change in terms of security, noted Mr. Pigeon.
Elizabeth Sale, Osler’s financial services lawyer, said she wasn’t sure what changes would happen once the system is in place.
“In general, when I see consumers and people talking about it, it seems clear to me that it is not well understood,” said M.me Dirty.
She said using terms like open banking or consumer-focused finance aren’t really helpful because they don’t give an intuitive sense of what it was about.
“This needs to change, people need to actually understand what this is about. »
Supporters say it takes time for momentum to build and for people to understand and trust it.
“We have to be realistic when we talk about disrupting one of the oldest and most established industries in the world,” said Nicholas Schiavo, director of federal affairs at the Canadian Council of Innovators.
An element of education is necessary, but overall Canadians don’t need to understand the system itself so much to know the benefits, he suggested.
The current lack of competition in banking translates into high fees, which a report released last month by North Economics estimated at more than $7.7 billion a year.
As open banking expands globally in countries like Australia, India and Singapore, and progress is made in the United States, there are also signs that new players establish themselves more quickly.
It took the UK around five years to reach five million connected accounts, which Brazil achieved less than a year after launch.
The more companies that enter this sector and offer useful solutions, the more popular it will become, even if people do not quite understand how it works, assured M.me Child.
“You should know it’s convenient.” It makes your life quick and easy, she said. That’s what it’s about. »