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Open Banking in Canada

Canada is among the many countries that are working towards an open banking system for the good of its citizens. Financial institutions across the country are getting involved in the planning and implementation of the network. But what is open banking and why is it important?

What is Open Banking?

Open banking is a global movement that aims to give consumers more control over their financial data. A truly open system will allow individuals to securely share their financial data with third-party vendors of their choice. In return, those vendors can offer services that are customized to the individual.

In addition to having access to more services, consumers will be able to access all their financial data in one place. Open banking allows for the aggregation of data from banks, credit card companies, investment accounts, and more. This gives individuals more control over their financial health and their future.

An open banking network requires a robust infrastructure that is built and implemented throughout the country. However, no matter how robust the network, it won’t work if financial institutions don’t agree to become a part of it and adhere to its policies. Let’s talk about why that’s important.

How Does Open Banking Work?

Open banking allows organizations to share consumers’ financial data with one another, with permission from the consumer. It allows an individual to move money between institutions and use a mobile app to pay for goods or services. As you can imagine, there is a complex system working in the background to make that happen. Here are some of the key components of open banking:

Governmental Oversight – The Canadian government has been involved in the open banking initiative since 2018 when the idea was first presented. Since then, the government has created an advisory committee that has produced multiple reports outlining the approach and implementation of open banking in Canada. In March of 2022, Abraham Tachjian was named as Canada’s open banking lead and will move forward with the recommended two-phase rollout.

Financial Institutions – The government encourages all financial institutions to embrace the open baking initiative. As part of this network, these institutions will build customer-centric solutions to help Canadians have greater access to financial services. In return, these institutions will have greater reach and a larger customer base.

FinTech Companies – The open banking initiative cannot be implemented without the help of FinTech companies. These companies are tasked with building innovative systems to facilitate the open yet secure sharing of consumer data. As they build out these systems, they will need to be mindful of any governmental policies with which the system must comply.

Small Businesses – Canadian business owners will be able to offer a more robust set of payment options to their customers. Using open banking, they can explore the options with their payment processor and enhance their offerings accordingly. Additionally, they will have more choices for cybersecurity to protect their consumer data.

Consumers – The open banking initiative will benefit financial institutions and FinTech companies but will also be a major win for consumers. With open banking fully implemented, people will have access to alternative financial solutions that may not have been available to them previously. This, along with automation and aggregation of data, will make financial wellness more attainable for all.

OBIC – The Open Banking Initiative of Canada is a not-for-profit group that is supporting the movement. They serve as a partnership between multiple organizations involved in the rollout of the open banking initiative. They help to facilitate conversation and collaboration to keep the project moving forward.

How do Merchants Participate in Open Banking?

Implementing the open banking initiative will require the collaboration and cooperation of merchants across several different sectors. These merchants will work together to make the initiative successful and give all Canadians more control over their financial well-being. These merchants include, but are not limited to:

  • Financial Institutions
    • Banks
    • Credit Unions
    • Credit Card Issuers
    • Investment Firms
  • Payment Processors
  • Settlement Agents
  • Credit Monitoring Companies
  • Tax Preparers

Small businesses will benefit from open banking by having more choices in their business. Open banking can help business owners expand their customer base by offering more options for a variety of needs. Here are some of those options:

  • Security – Merchants will have access to better security to protect their customers’ data. Open banking is a more secure way of sharing consumer data, contrary to what some people believe. With enhanced security options, merchants will be able to offer secure payments without the need for screen-scraping.
  • Payment Options – Open banking will open the door to more possibilities in payments. Merchants who currently only offer cash, check, or charge options may be able to implement additional digital payment types. Offering more payment types for consumers could result in an increase in purchases and customer base.
  • Tools to Grow – Business owners will also have access to some innovative tools to help them grow their businesses. As FinTech companies build out the infrastructure of the network, they also plan to build tools to support its success and adaptation.

How do Consumers Use Open Banking?

The key component of open banking for consumers will be to choose an application. As a result of collaboration between financial institutions, there will be a string of new mobile and web applications for consumers to use where their data can be aggregated, stored, and shared. With open banking fully implemented, consumers will benefit in the following ways:

  • Aggregation – With all their data being shared in one place, consumers will be able to quickly make financial management decisions without logging into multiple applications or searching for financial documents on various platforms.
    • Example: Mobile applications that aggregate a customer’s bank accounts, credit cards, investments, etc. into one app for easy viewing
  • Monitoring – With all data being stored in one place, consumers will be able to easily monitor their identity, credit scores, financial health, and more. They will be able to check these metrics more frequently due to the convenience of open banking. When an individual has concerns about their financial well-being, they will be able to address them more quickly.
  • Automation – Consumers will experience faster transactions on a variety of platforms due to the easy transfer of data between organizations. This means more payment options, better services, and more flexibility.

The Future of Payments in Canada

Open banking is well underway in Canada. The advisory committee has placed its lead and FinTechs are working diligently to build the infrastructure needed for a successful implementation. Canada is currently undergoing to two-phase process that begins with an 18-month system design and implementation. After that, an administration will be put in place for ongoing management of the initiative.

Canada plans to be fully implemented by 2023.