Canada’s financial upstarts are lining up behind open banking, but bigger players may need convincing
Upstarts in the financial sector say the data-driven concept of “open banking” could inject a healthy dose of competition into Canada’s highly concentrated financial services industry — but it may take some convincing to get the bigger players to embrace the idea.
Last week marked the deadline for submissions to the federal government’s consultation on the framework, which if adopted could allow consumers and businesses to make their financial transaction data available to third parties.
That information is currently controlled by banks and other financial institutions used by the consumer. If that data was portable, however, other parties could potentially use it to better price or tailor products or services, such as an app that would let a customer keep tabs on all of their accounts at various banks through a single dashboard, without violating their bank’s terms and conditions. Open banking could make switching accounts easier as well.
A spokesperson for the Department of Finance Canada said they had received more than 95 submissions for the consultation, the results of which will be made public in a form that is still being determined.
Among the parties who made submissions in favour of some degree of open banking were Toronto-based alternative lender Equitable Bank and Portag3 Ventures, a venture capital fund backed by Power Corp. of Canada that has invested in fintech companies such as robo-advisor Wealthsimple.
Equitable, Canada’s ninth-largest independent lender, said a framework that supports the idea of customers owning the rights to their own financial data would increase “the competitive intensity” of the banking industry.
Andrew Moor, president and chief executive officer of the branchless bank, said Equitable’s view is people should shop for the best banking services they can get.
“We don’t really think that that’s necessarily provided by one institution,” he said in a recent interview with the Financial Post. “And open banking makes all of that much easier.”
Portag3 Ventures, meanwhile, predicted in their submission (published on its website) that open banking would “stimulate” competition in the sector.
“Facilitating improvement in competition has been a specific driver for Open Banking in the (United Kingdom), Australia and New Zealand,” the submission stated. “Canada lacks a specific focus on competition in regulating financial services, especially compared with the U.K. and Australia, countries with very similar banking sector market structures.”
The current consideration of open banking comes as technology is disrupting industries around the world.
Despite the sea change, Canada’s banking sector has remained under the control of a handful of financial institutions — Portag3 noted that, in Canada, the top-six banks hold 90 per cent of assets “and also dominate in all aspects of retail banking.”
While Canada’s major lenders have spent billions on technology and innovation, including partnerships with upstart financial technology players, they appear to be lukewarm on open banking — or anything that risks opening the financial system to third parties.