Open banking – a system that empowers consumers to share their financial data with third-party service providers via their financial institutions – is quickly coming to Canada.
While this means Fintechs will be able to access data that will allow them to stay competitive, it also means that the federal government must find a way to ensure that Canada’s open banking system is governed by a robust standard that allows the financial data of Canadians to be shared securely and responsibly.
As the country continues to develop a governance framework around open banking, Fintechs are debating about how the chosen governing body – an industry-led or regulatory-led approach – will impact third-party competition within the industry.
Fintech.ca sat down with Chris Ford, President of Canadian technology consulting company, Intelliware, this week to talk about the different ways Canadian regulators can approach open banking, how that would impact Fintechs nationwide, and what they can do in anticipation of open banking being introduced in Canada.
Give us some background on how Intelliware supports Fintechs in Canada.
CF: For 33 years, Intelliware has built a strong reputation as a pioneer in Agile adoption and in providing custom software development and digital engineering solutions that enable organizations, like Fintech businesses, to solve complex challenges and accelerate their goals. To date, Intelliware has worked with some of the largest banks and multinational Fintech firms in North America, delivering enterprise-grade software solutions that ensure substantive business value and enduring competitive advantage for our customers.
In your opinion, how could Canada’s open banking system impact the Fintech industry?
CF: Open banking in Canada will allow consumers to share financial data with Fintech businesses, enabling these third-party service providers to leverage the information and gain a better understanding of their users. This will make Fintechs more flexible and responsive to market needs, ultimately creating new and improved customer experiences that will allow them to stay highly competitive and cognizant of the evolving demands of end users.
Open banking will also make it easier for Fintechs to partner with banks, creating mutually beneficial relationships that make sharing consumer data more seamless and streamlined. By streamlining processes and eliminating manual tasks like importing customer data, open banking can also help Fintechs with cost-saving efforts which these businesses can use to make their services and products more affordable and accessible to the end user.
The possibility of an industry-led framework as Canada’s open banking governing body has caused some companies to wonder how third-party competition within the industry will be impacted. What advice do you have for Fintechs should an industry-led framework be chosen? Do you expect that an industry-led framework will stifle competition?
CF: Before that, I think it is important to first understand what an industry-led framework would mean for Fintechs. With an industry-led approach to open banking calling for self-regulation, Fintechs will be able to develop a blueprint that is more easily implemented with existing technology and resources. Banks, which have been the traditional gatekeepers of customer data, may also be more incentivized to implement an API-based open banking functionality so that they and Fintechs can both benefit from it.
Conversely, an industry-led approach could result in Fintechs being beholden to a blueprint developed and implemented by banks which may or may not align with their business goals and data needs to stay competitive. As an example, we can expect banks to be reluctant to support features that enable Fintechs to offer directly competing services (e.g. financial advice) versus services that are complimentary (e.g. identity verification).
Should an industry-led approach be chosen to govern Canada’s open banking system, my advice for Fintechs would be to prioritize relationship building with banks to help co-create the architecture and feature roadmap such that new value is created, whilst customer data is also protected. In an industry-led approach, banks will have control, and Fintechs that succeed will need to be in close partnership with those banks. It would also be beneficial to continue closely watching the progress of open banking as it continues to evolve.
In contrast, a regulatory approach could be chosen as Canada’s open banking governing body. What are the pros and cons of a regulatory approach for third-party Fintech businesses?
CF: A regulatory-led approach to open banking calls for government oversight of the system and will likely result in all stakeholders within the financial sector operating within a single governance framework that establishes a blanket standard for customer data sharing. An advantage of this approach is that Canada’s open banking system will be overseen by a de facto governing entity that will ensure a more balanced way of determining which parties can participate in open banking while ensuring compliance with the standards to ensure consumer privacy and security are protected. Theoretically, this also means that the needs of individual Canadians and the widest spectrum of businesses will be prioritized in the most unbiased way possible.
However, the downside of this approach is that objective oversight may not always be possible, considering the strong hand that the Canadian banking lobby has always had in the definition and implementation of regulatory programs. Moreover, a regulatory framework might also result in Canadian banks being slower to share customer data with Fintechs if the information results in greater competition that threatens existing businesses or existing direct relationships with customers. Furthermore, in accessing customer information, Fintechs will be more exposed to more risks and obligations surrounding personal information privacy and security – a heavy responsibility as not all businesses are equipped with sufficient resources or expertise to ensure the appropriate safeguards.
In your opinion, do you think an industry-led approach or a regulatory-led approach will be more beneficial for the industry overall?
CF: I believe that a regulatory approach to open banking will be more beneficial for the industry overall because ultimately the interest of the banks in an industry-led model is going to prevail and this will directly oppose the objective of increased competition. Properly designed and implemented, a regulatory approach should deliver an even playing field. There is nothing that prevents banks or other industry players from innovating and going beyond the regulatory minimum so, in theory, this model should deliver the benefits of both paradigms.
How does Intelliware plan to navigate the open banking environment? How do you expect your business to be impacted by the framework decision?
CF: Intelliware is at the forefront of strategy and design in the open banking domain. We have been delivering API-enabled solutions for most of our history in some shape or form and we expect to be a central player as banks continue to modernize their core platforms in readiness for open banking. Additionally, we are in regular dialog with both banks and Fintechs, championing new business models that proactively advance open banking prior to a coordinated industry or regulatory mandate. In particular, we see an abundance of opportunities in the business banking domain.