Steve Boms
First appeared in The Globe & Mail
Collectively, the fintech members of the Financial Data and Technology Association of North America provide approximately 3.5 million Canadians – about 15 per cent of the country’s adult population – with access to new, technology-powered financial tools that help them manage their finances. Despite an ambiguous regulatory environment that can sometimes lead to blockages and restrictions from their banks, these consumers and small businesses have voted with their smartphones in favour of financial technology.
While fintech adoption in Canada continues to grow, an unclear regulatory environment prevents millions more Canadians from fully accessing the benefits of these technology-based tools. Finance Canada, though, has formed an Open Banking Advisory Committee and recently kicked off a formal open-banking consultation, inviting input from the public and market stakeholders across the country.
For the 85 per cent of adult Canadians who are not today benefiting from these new technology platforms to help them manage their finances, it is well past time. Britain and the European Union already have implemented open banking frameworks, and India, Australia, Mexico and South Africa are making strides. Consumers here risk being left behind.
Based on Britain’s experience, we know open banking stimulates investment and innovation in platforms and programs that will help consumers improve their financial well-being. Services will be more insightful and intuitive. With more competition and transparency, products will be better priced. Financial inclusion for less sophisticated consumers will improve. Frustration in linking with or switching service providers will be radically reduced. Best of all, if done right, open banking can achieve this all while ensuring consumers’ and small businesses’ risks are properly managed by fully regulated market actors who are prepared to make them whole if something goes wrong.
In short, consumers will be able to trust the new ecosystem and avoid bad actors.
It’s not only individual Canadians who will benefit. Small businesses, able to use their financial data with whatever well-regulated technology provider they choose, will have access to automated banking and accounting tools; affordable, cash-flow underwritten capital; more efficient, quicker payment platforms; and other benefits.
To achieve these outcomes, Finance Canada first must recognize that customers, not banks, own their financial data. In Canada today, there is no legal requirement that financial institutions allow their customers to share their account data with other service providers. These institutions can decide whether a customer is permitted to share data with third-party financial technology firms, or anyone else who might assist with managing their finances. As a result of regulatory ambiguity and, in some cases, security concerns, financial institutions can currently restrict or even prohibit third-party access to customer data, even when their customer explicitly requests their information be shared.
Although most fintech is new, the underlying need to share financial data with service providers has existed for generations. Consumers and small businesses have had to take paper statements, receipts and financial information to advisers and accountants to prepare their taxes, manage investments or file loan applications. The promulgation of fintech tools has merely made these processes more efficient and widely accessible. Ultimately, open banking is the 21st-century equivalent of a process that has existed in financial services for centuries: With their consent, consumers and small businesses can affirmatively grant access to a trusted third-party financial provider of their choice to receive a product or service of their choosing.
To ensure consumers and small-business owners are protected in this modern system, open banking will require a third-party provider to obtain explicit consent from a consumer, using disclosures that can be plainly understood. Consumers and small businesses will be permitted to opt out of using a service – and sharing their data – at any time. And all parties in the system will be appropriately regulated to ensure the protection of their customers. Most importantly, no financial institution will be able to dictate to its customers whether or not they are able to take advantage of third-party tools to improve their finances, just as they can’t dictate to their customers with whom they can share their paper statements.
Canadians today hold nearly $600-billion in non-mortgage debt. Interest rates are rising and delinquencies could increase along with them. With better access to fintech platforms, millions of Canadians could better manage their financial lives. As Finance Canada formally kicks off its review of open banking, it’s time to empower the 85 per cent of Canadians who are not yet benefiting from financial technology.