Open Banking Report: Toe in a Cold Lake

Guest Article by John Mavriyannakis

Three years in the making, having initially been tabled in the 2018 budget, the Canadian federal government has released its final report on Open Banking. Touted by many media outlets as a win for the Canadian consumer, it will do little to impact the success of FinTechs here and may in fact be more negative than positive.

The announced Open banking regulations will create a one-way, common data feed from banks to FinTechs and others to share general account information. This information is currently being captured through screen scraping tools by FinTechs and will not change their end user capabilities in a meaningful way. In comparison to the scope of Open Banking data being shared in other jurisdictions this is much lower. Data being shared in other jurisdictions include: Investments Loan Servicing or Financing, Marketing, Customer Loyalty, eCommerce, Equity Actions, Loan Origination, and others. The announced Information Enquiry is very thin.

The current scope also does not allow FinTechs to leverage and use the KYC and AML efforts done by banks. The regulatory hurdles associated with selling financial products to customers are much more costly and time consuming to implement and represent a significant barrier of entry for FinTech’s.

Open banking was meant to enable FinTechs and help consumers, but this does not fulfill the goal or objective of the project and in doing so has given our Canadian banks the opportunity to better compete.

Defensively, for existing banks, the announced Open-Banking:

  • Eliminates the backlash that they have been receiving in this space by being slow to the market compared to other jurisdictions globally
  • Creating a common API structure eliminates the high costs of managing integrations with every potential FinTech and reduces data risk and liability caused screen scraping data
  • Without data write capabilities, information about products purchased through FinTechs are not copied to a user’s primary bank creating a disjointed data environment with their core bank not having all the details of their financial products
  • Specifies what data can be shared and what APIs are in scope which, like a patent going from pending to issued, this removes ambiguity and clearly defines what is in scope and what is not
  • Defines that any work products are the ownership of the bank meaning that all that needs to be shared is the raw data

Offensively, this model works to the banks advantage as well:

  • Provides direct market research and understanding of who the FinTechs are that are accessing the highest number of customer accounts along with the ability to assess what their differentiated capabilities are and interrogate their functionality
  • Identify the customers are that are being targeted to assess the client segment value, and a path to build a strategy to keep them engaged, like product bundling or price discounting
  • Puts the high cost of developing and managing a complex and increasingly onerous regulatory environment solely on the FinTechs which is likely to negatively impact their financial opportunity

Overall, the fact that Canada has entered the Open Banking arena is a big step forward with an aggressive in-market date, but this has only a dipped a toe in frigid water.