Bird’s Eye View
A made-in-Canada version of open banking (also referred to as “consumer-directed finance”) is closer than ever. On March 21, 2022, PwC Canada’s digital banking director Abraham Tachjian was appointed the open banking lead in Canada, and his efforts to make open banking a reality are already underway. As a common law and civil law lawyer, as well as the Director of Digital Banking at PwC, Tachjian is highly qualified to help create a made-in-Canada version of open banking.
The Canadian Lenders Association is excited to work with Mr. Tachijian to create a robust open banking framework that will give Canadian consumers and businesses more control over their financial data, ultimately improving the user experience and ensuring greater financial inclusion. Tachijian and relevant government stakeholders should capitalize on this momentum and move forward swiftly with implementation.
On the policy front, there are still hurdles that need to be surmounted, including with regards to data portability and consumer data privacy rights. Tachjian should make overcoming these obstacles through clear legislative action a priority. Dianne Cupples, CEO of Portfolio+ says the company is “confident that Abraham Tachjian can provide the guidance and leadership our open banking community needs to address these key challenges in short order and move our industry forward” so that Canadian consumers can access “the innovative financial services that open banking promises.”
Open Banking 101
In case anyone has been hibernating for the past few years, open banking is the creation of well-defined protocols and standards for sharing and exchanging real-time data in a secure manner between financial institutions, third parties, and customers. Open banking has the potential to benefit Canadians by speeding up the credit process and allowing for customers to access credit who may otherwise be denied based on their credit score alone. For businesses, open banking would allow a richer, more in-depth assessment of a customer’s finances, which can help them make more specific and safer credit decisions.
To continue fostering the momentum of open banking, the CLA has partnered with OBIC, a nonprofit dedicated to supporting the creation of a collaborative form of open banking for the ultimate benefit of both consumers and financial stakeholders.
On the Policy Front: The Complexities of Regulation
Financial regulators in Canada have several policy issues to surmount before open banking can become a reality. Canada has a complex multiplicity of financial services regulations across the provinces, meaning a unique implementation of open banking will likely proceed in a limited fashion before opening up beyond the biggest banks. In Canada, banks fall under certain federal rules, while credit unions are regulated provincially. Open banking will require engagement with a variety of stakeholders, including Payments Canada, the Office of the Superintendent of Financial Institutions (OSFI), the Canada Mortgage and Housing Corp. (CMHC) and the Office of the Privacy Commissioner of Canada.
IBM has begun working as a technology and strategic partner to Canadian institutions during this early phase of open banking’s rollout. A robust infrastructure with expert partners such as these must be preemptively set up to mitigate risk and solve for any issues that might arise upon implementation. This is where learning from international case studies is key.
International Context
For some international context about how open banking has succeeded in other countries, one can look to countries such as Australia and Brazil.
Brazil separated its initiative into four phases, which were first approved in 2019, and signed into law in 2020. The four phases took place between 2020 and 2021, culminating in the final stage, which was a shift into Open Finance. Brazil is thought of as a good example when it comes to accreditation, because institutions are required to undergo a certification process of the APIs relating to all shared products in order to demonstrate their technology is compliant with the Central Bank’s requirements.
Australia provides an early case study: open banking legislation was announced in 2017 and became effective in 2019. One asset of the Australia model is that it has established a central authority, unlike in the UK. The New Payments Platform (NPP) is the coordinating body for the ecosystem, and allows banks to commercialize their platforms and innovate around UX. Another advantage to the Australia model is that they’ve made clear strides to encourage smaller players to participate, lowering access costs to allow more companies to engage in open banking.
Companies at the Forefront …
Many Canadian fintechs have already developed infrastructure to employ APIs and other digital tools to provide customers with some of open banking’s future benefits. Flinks and Portfolio+ are leaders in the industry, providing technology offerings already utilizing open banking’s goals but yet to be systematized on a federal level. Regarding the prospect of open banking and its future, Portfolio+ remains “fully committed to working with industry partners and continuing to expand our own financial services technology, cloud banking services, and application programming interface endpoints to provide banks and financial institutions with the foundational technology they need to participate in a flourishing open banking ecosystem.” said Dianne Cupples.
The Crystal Ball
As we all look into the crystal ball and try to guess at what the future look like in Canada, the CLA believes in the possibility of creating a hybrid open banking system that is both market-driven and government-led. We expect that Mr. Tachjian and the companies leading the charge will glean insights from international examples and keep in mind the particularities of the Canadian financial landscape. As a champion of financial inclusion, the CLA will continue working with all relevant stakeholders in order to ensure a streamlined rollout of open and smart banking.