Canada has some of the highest performing and most innovative finance companies worldwide, particularly in the payments, banking, lending, and crypto spaces. However, there’s still one critical area where Canada lags behind other western democracies like the UK and Australia – open banking. Luckily, this situation is set to change in the coming years as the Canadian government makes strides toward incorporating open banking within the traditional financial services landscape.
In a recent news release from the Department of Finance dated March 22, 2022, Randy Boissonnault, the Minister of Tourism and Associate Minister of Finance, said, “Canadians deserve a secure open banking system that is regulated, efficient, and protects their personal information.”
But What exactly is open banking, and what can it do for the average person? Let’s get into it.
In simple words, open banking is a way for you to share your financial data with financial technology (fintech) companies without compromising security. Fintech apps are not your bank’s mobile banking app but rather additional third-party apps that provide you greater control or visibility over your finances.
With open banking, your bank will securely share your financial data with the fintech app without you needing to share your online banking credentials (username and password). The process is simple and straightforward. For example, let’s say you find a fintech app that consolidates all of your financial data from multiple bank accounts into one user-friendly interface. This app would allow you to see your complete financial standing (total checking, savings, net worth, debt) in one place. When you open the app, it will prompt you to link your bank accounts, which you then authorise on your banking app, and your financial data is then shared securely.
Open banking has proved hugely popular in other countries, like the UK. The UK adopted open banking in 2018, and as of 2021, more than 2.5 million consumers now use open banking products.
Since open banking is not yet available in Canada, fintech companies have been forced to use a technological workaround to allow Canadians access to fintech apps. This workaround is called screen scraping and involves sharing your online banking username and password. While screen scraping does allow you to access financial products and services you otherwise couldn’t, it poses a significant security risk.
With screen scraping, the fintech app essentially accesses your bank account as if they were you. This gives the app far more control over your bank account than an open banking solution. Additionally, by sharing your online banking credentials, you might void your agreement with your bank and lose their protection if unauthorised purchases occur.
Open banking allows you to securely access a wealth of fintech apps that can improve how you manage your finances. Your bank’s mobile app might lack features that third-party apps can provide. For example, some fintech apps offer advanced budgeting features, allow you to see all your financial information in one place, will enable you to display your creditworthiness in a comprehensive and easy-to-read format, and more.