Is Open Banking Coming to Canada?
by Yvonne von Jena | October 5, 2018
This week, the Minister of Finance Bill Morneau launched an Advisory Committee on Open Banking. The government wants to understand the merits and risks of open banking, such as providing consumers with “more affordable and convenient services” while also balancing the “needs of the financial institutions that serve them”.
Open banking is quite an innovative concept, has been adopted by various countries and is expected to make up a meaningful part of total global banking revenues in the future. For example, Accenture estimates that 7% of total banking revenues globally will derive from open banking activities by 2020.
Open banking refers to open APIs that enable third party developers to build applications and services around the data that is held by banks. For example, this data might include some simple records, such as the location of branches and the exact details of certain banking products. To learn more about open banking, see the following Wired article called What is open banking?
Although mainly open banking has been driven by regulators, some banks have moved ahead. For example, in March 2018 RBC announced that it was the first Canadian bank to open an API developer portal.
There are various countries that have either adopted or are adopting open banking. These include the UK, Australia, Hong Kong and Europe. Different countries / regions are taking a variety of approaches to balancing innovation with consumer protection.
UK: The UK’s financial regulator, the Financial Conduct Authority (FCA), launched its Payment Services Directive (PSD2) and Open Banking in January 2018. According to the regulator, this “initiative provides consumers with choice: choice to share their data in a way that allows them to take advantage of the newly regulated payment initiation service and account information service.”
Australia: Australia is launching open banking in July 2019 and it is taking a customer-first approach to regulating open banking. ZDNet explains, “Open banking is being implemented as part of the country's new Consumer Data Right, which will allow individuals to ‘own’ their data by granting them open access to their banking, energy, phone and internet transactions, as well as the right to control who can have it and who can use it.” According to Forbes, the country will force the four major banks in Australia to make customer data available to third-party providers by June 2019 – an accelerated implementation timeline compared to other markets around the world.
Hong Kong: Hong Kong is taking a slightly different approach says Forbes. The Hong Kong Monetary Authority has set out timelines for institutions to follow and has also made recommendations on specific protocols and data formats, hoping to keep the nascent open banking industry there from developing different, potentially incompatible, technological approaches.
Europe: Elsewhere, Europe adopted the Revised Payments Services Directive (PSD2) this year. It gives third-party companies the ability to access bank customer data and process payments on their behalf, and has mandated two-factor authentication in the hope of protecting consumer data. The UK has its own set of similar rules.
Forbes provides a good summary of the activity:
As Australia puts the consumer first, Hong Kong sets standards, Europe lays down rules, the United States leaves things to free markets, and Canada shows caution, each country is taking its own unique approach to finding a balance between the benefits of open banking and the need to protect consumer data. It will be interesting to see the results of these different paths and how much open banking enabled by consumer data sharing truly disrupts the banking industry.