Open Banking in Canada: Lesson from Seeing Like a State

Abstract: Canada is entering a critical phase in the rollout of open banking, supported by real legislative momentum and a rare alignment across the financial sector. While rereading James C. Scott’s Seeing Like a State, it became clear how relevant his central argument is to this moment. Scott notes that well-intentioned reforms often fail when they impose central order on systems shaped by local knowledge and daily practice. Open banking will advance in Canada only if its framework reflects this reality and is built with the lenders, fintechs, and credit professionals who work with data at the ground level … The State needs to be “Seeing Like a Lender.”

On a recent vacation, I found myself rereading James C. Scott’s Seeing Like a State. It struck me how relevant Scott’s observations are to Canada’s current push toward open banking. In short summary, the book describes how governments seek to create order and legibility in complex environments. The goal is usually well intented: to design clear systems that offer fairness, predictability, and the efficient delivery of services. Scott warns, however, that attempts to simplify a complicated reality can backfire if they overlook the knowledge held by the people who actually operate within that system. The concern that any state’s need to simplify a complex system is prone to backfire.

As I reread the book, I thought that Open Banking could be one of these moments.

After years of consultation and debate, the Carney government is finally advancing open banking. Draft legislation is moving forward. Industry participants understand that data portability and secure access are now national priorities. The federal government recognizes that a modern data framework is essential to competition and consumer empowerment.

At its core, open banking is a legibility project. It seeks to standardize how data is shared, how consent is managed, and how financial institutions interact in a more transparent digital ecosystem. This is desirable. But Scott reminds us that frameworks only succeed when they evolve from the lived practices of the people who use them. Canada must therefore design open banking around lenders, borrowers, and fintech innovators who already work with data every day in real credit decisions.

Seeing Like a Lender

There is real progress in Canada. Financial institutions and fintechs are increasingly aligned on security and interoperability. Lenders recognize the potential to reduce friction, strengthen identity verification, and improve affordability assessment. The government has indicated that this is the direction of travel.

Yet progress should not tempt us to believe that high level design can anticipate every operational need. Scott’s caution is that top down clarity often meets bottom up complexity. Lenders understand this well. Underwriting, collections, affordability analysis, and fraud mitigation rely on dynamic, context rich data that rarely fits neatly into a single standardized format.

Open banking must enhance this work, not restrict it.

Canadian lenders are central to whether open banking becomes a meaningful national asset. The benefits are tangible:

• Faster income and identity verification
• Reduced administrative overhead for onboarding
• Improved fraud detection and mitigation
• Better support for new to credit and new to Canada borrowers
• Stronger cash flow insights for SME lending

These gains will only materialize if the framework is built with lender input and aligned with real operational processes.

Scott’s Key Lesson: Respect Local Knowledge

Seeing Like a State argues that reforms thrive when policymakers combine broad coordination with humility toward local expertise. In the context of open banking, this expertise is held by:

• credit risk teams
• fraud specialists
• compliance and AML professionals
• fintech engineers
• community lenders that serve niche borrower groups
• collections and repayment support teams

These practitioners understand how data is actually used. Their input will determine whether open banking streamlines friction or creates unintended barriers.

Principles for a Successful Framework

To maintain momentum and avoid Scott’s “high modernist” traps, Canada should anchor its open banking rollout in three guiding principles:

1. Co-design with industry
   Policymakers must continue to work closely with lenders, credit reporting agencies, and fintechs to validate standards against real world use cases.
2. Flexibility over rigidity
   The framework must allow for innovation, sector specificity, and future adaptation rather than enforcing a single uniform approach.
3. Practical success metrics
   Adoption, improved borrower outcomes, higher quality data, and reduced operational friction should matter more than the elegance of the regulatory architecture.

Rereading Scott reminded me that large scale reforms succeed when they respect complexity rather than try to erase it. Canada’s open banking initiative has the potential to create a more transparent, competitive, and inclusive financial system. The Canadian Lenders Association will continue to advocate for a framework that is secure, practical, and aligned with how lenders and borrowers actually interact with financial data.

If Canada stays attentive to lived experience as well as legislative ambition, open banking can become one of the most important financial innovations of the decade.

Five Key Points

1. Open banking is gaining real momentum in Canada
   Draft legislation, shared industry priorities, and federal commitment signal that open banking is shifting from concept to implementation.

2. Scott’s core warning applies directly to financial reform
   Seeing Like a State shows that large systems fail when central planners overlook the practical knowledge held by people who operate within those systems.

3. Lenders are critical to the framework’s real-world success
   Underwriting, fraud prevention, affordability analysis, and SME credit decisions rely on complex, contextual data that must be reflected in standards and protocols.

4. Co-design is essential for adoption and functionality
   Policymakers must continue to engage lenders, credit bureaus, and fintechs so the framework supports actual operational workflows rather than theoretical models.

5. The goal is practical improvement, not regulatory symmetry
   Success should be measured by better borrower outcomes, reduced friction, higher quality data, and increased competition in the market.