Open banking is a financial services trend that enables third-party providers (TPPs) to access and use financial data from customers with their consent. This is achieved by utilizing application programming interfaces (APIs) that allow secure data exchange between financial institutions and TPPs.
As of May 2023, Canada is still in the process of developing its open banking framework. The Department of Finance Canada has released a consultation paper on open banking, and stakeholders are providing feedback on the proposed framework.
Fintech.ca sat down with Michael Garrity, CEO and Founder of Financeit, to learn more about the potential benefits of open banking for Canadians.
Financeit is Canada’s leading point-of-sale financing provider for the home improvement industry and powers sales transactions for merchants in home services, recreational vehicle, and retail with technology-driven customer payment plans.
Before we dive in, how would you explain open banking to someone unaware of the concept?
MG: In simplest terms, open banking really just means that consumers should have control over their financial information; this includes credentials and data, like banking and wealth management history. Consumers should be able to direct that information easily to companies that need it to be able to provide them with the best services and products they offer, such as loans, credit cards and other financial products and services. It’s typically a set of rules enacted and enforced by a central authority that compels incumbent players to allow this data autonomy for the betterment of the consumer.
Who would benefit most from open banking?
MG: Any time there can be more competition on a level playing field in financial services, the consumer and small business client wins with lower rates and fees.
While the Canadian government committed to a January 2023 target date for the launch of the first phase of the proposed open banking implementation plan, we still have yet to see anything tangible – should this be concerning?
MG: To be fair to governments, slow and steady is the right approach when it comes to safeguarding the private financial data of consumers, so I completely understand a thoughtful approach. That said, we are one of the slowest countries in the Western world to implement open banking. In the end, it is really not rocket science and there are plenty of effective, operational frameworks to borrow from.
What are other countries currently doing to support the shift to open banking?
MG: The UK and the EU have already established a set of rules associated with open banking. At the core is the acknowledgement that consumers should own all their non-proprietary financial data that is being stored at an existing institution, and that the institution should offer an easy-to-integrate API approach to making this data available on request to authorized third parties.
Do you feel that Canada is falling behind in this realm?
MG: It’s not about how I feel, it’s just data and the data says yes, absolutely.
What does the future of open banking in Canada look like?
MG: At the recent Canadian Fintech Summit, I suggested that it is likely to go in one of three directions:
1. The federal government catches up and publishes a standard for open banking, a timetable for adherence, and a set of penalties for lack of adherence. Let’s call this the best option.
2. The federal government continues to kick the can down the road with new dates and more consultation. In the gap, companies like ours and others continue to hack solutions that find a way to get new products and services into the hands of consumers using open banking work-arounds. Let’s call this the current case.
3. The federal government abdicates responsibility for implementing open banking and instead goes back to the major banks and their owned partners, like Symcor, to ask them to self regulate an open banking solution. Let’s call this the ‘fox in the henhouse case’ or worst case.
Circling back to the government, with your expertise, what does the 2023 federal budget signal to you about the future of tech and innovation here in Canada?
MG: As someone who worked in federal politics for a number of years, I think the 2023 federal budget was just a lot of empty platitudes and non committal words on open banking. Good reading but not much doing…
Amid a recession, is Canada, and more specifically Toronto, still touted as being “Silicon Valley North”?
MG: Canada is an amazing country filled with talented and diverse people. We have access to capital for good ideas, and we have a great domestic economy and an even greater adjacent neighbour to sell good products and services to. In the grand scheme of things, we are a country born on third base – so go get it and don’t take no for an answer.
What trends are standing out most to you for the tech industry in Canada in 2023?
MG: Probably the trend that most intrigues me this year is under the theme of “AI (finally) grows up.” After a decade of talk and failed companies in AI, it is both awe-inspiring and terrifying to see how quickly AI automation is gearing up to solve real world problems; it will finally be a key part of the design of companies and services in the next 5 years. If the pace of evolution of the technology continues though, there will be massive implications for labour trends and employment that we are just scratching the surface of right now.
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