Over the past year, Open Banking in Canada has made huge progress, with the selection of Canada’s Open Banking Lead and progress made against the implementation roadmap proposed by the advisory committee. A Canadian Open Banking framework will introduce innovative products and services for Canadians, increase competition, and create equality across the financial services ecosystem. In this piece, learn more about the status of Open Banking in Canada and what’s needed to move forward.
My name is Michelle Beyo and I am the CEO and Founder of FINAVATOR, an award-winning consultancy focused on bridging the gap between fintechs and traditional banks. Before starting Finavator, I have had 20 years of extensive industry experience driving innovation across both the retail and payments industries. I am a strategic advisor to fintechs, a Money 20/20 Rise Up alumni, TEDX speaker, and a Board Member at Open Banking Initiative Canada.
FINAVATOR’s mission is focused on bridging the gap between fintechs and traditional banks. When working with startups, we are passionate about driving growth through strategic partnerships, enterprise relationships, and reaching new customer segments. With traditional banks, we work to help evaluate fintechs to find the best innovation partners for our clients to help them expand their service offering to their customers. We work with our clients to build innovative payment and digital services that allow them to stay competitive, offer their customers relevant solutions and find new revenue opportunities. FINAVATOR has expertise in a variety of areas including Payments, Prepaid Solutions, Open Banking, Crypto Custody, Challenger Banks, Ecommerce, Affiliate Marketing, Micro Loans, Rewards, and Loyalty.
Canada’s current model for offering consumers a convenient, fast, and secure digital banking experience is screen scraping, a practice that essentially scans and scoops banking transaction data such as purchase types, payments, and deposits to provide financial apps with required data for the personalised experience that consumers have come to expect. However, it leaves Canadian consumers’ data vulnerable to hackers and once they have permitted service providers, they cannot control how long these third-party apps can continue to access their bank accounts or how much data they have access to.
Open Banking will reshape financial services in Canada by offering a secure banking ecosystem that allows consumers to selectively share financial transaction data with regulated fintechs, FIs, and payment services that fit their unique needs. In this regulated model, Canadians choose who can access their financial data, where they can use it and when they can no longer see it. Open Banking in Canada is ultimately consumer-directed finance (CDF), and it puts consumers where they should be when it comes to their money: in the driver’s seat.
Open Banking will create several opportunities for exciting and innovative products and services for all Canadians. Specifically, hyper-personalised products and services, increased access to consumer spending insights, the acceleration of credit applications, and account aggregation are just a few of the use cases that Open Banking in Canada will unlock. Some of the best opportunities include the creation of personalised financial products and services that will target the 5 million underbanked and 1 million unbanked Canadians in which today’s financial products and services do not address their current needs.
A healthy and competitive financial services sector is vital to Canada's economic well-being. Our current banking culture predominantly favours Canada’s largest FIs. In a recent report by the World Bank Group, Canada is ranked only 23rd in the world for ease of doing business. The report considered different aspects of the participating countries' business environments, including their regulatory environment. Within this culture, the concentration of asset size held by a handful of large retail banks has increased more than in almost any other developed country in the world. This has resulted in:
A dominant market share that allows a small group to determine the pace and direction of financial innovation in the country.
An uneven playing field that flourishes to the exclusion of smaller credit unions and FIs, challenger banks and fintech firms.
To truly meet the changing needs of Canadian consumers and small businesses in a digital age, this balance of power in the financial industry must shift. Progressive and inclusive innovation requires banking providers to welcome competition by partnering with fintechs and other third-party providers who can help them excel in today’s digitally-driven world. Not only could this positively shift the equilibrium in the financial services industry, but it could also redefine the very nature of relationships between FIs and emerging partners in consumer-centric innovation.
Partnerships between Canadian FIs and fintechs have already begun across the ecosystem, with large financial institutions and notable fintechs partnering to offer Canadians new products and services. As other market players such as tech giants (e.g. Apple, Google, etc.) and challenger banks (e.g. PC Financial) begin to offer Canadians financial services and products, partnerships will play a critical role for FIs and Fintechs to maintain their marketshare and relationships with Canadian consumers. Fintechs will leverage large FI’s consumer base and trust while FI’s will benefit from fintechs’ agility as well as digital-first solutions.
Financial inclusion is a serious problem globally, and in Canada, it is no different. Financial Inclusion can be measured in three dimensions: (i) access to financial services; (ii) usage of financial services; and (iii) the quality of the products and the service delivered. The lack of financial inclusion in Canada, especially for minority groups and those living in rural/remote communities, is a problem that can only be solved by all across the financial services ecosystem in Canada. Along with such collaboration, the implementation of an Open Banking framework within Canada will also be an important tool to help ensure financial inclusion.
According to ACORN Canada, 5 million Canadians, or about 15% of the population, are deemed ‘underbanked’. Underbanked can be defined as those who do have a traditional bank account of some kind but are unable to qualify for any kind of credit through a traditional bank, leaving these individuals to turn to alternative sources for their credit needs. Looking at the same data, 3% or 1 million Canadians are considered ‘unbanked’, or in other words people who have no bank accounts or access to banking services. For a country that prides itself on inclusion, this is a worrying statistic that requires attention. Over the past few years, these statistics have risen across Canada due to wage stagnation, a rise in the cost of living, and the impact of the COVID-19 pandemic on the Canadian economy.
Most of the people who are likely to be underbanked or unbanked fall into the category of Low-Income earners or a household or individual earning below 50% of the median household income, which for 2018 is less than USD 18,380. In 2018, about 7 million Canadians fall into the category of low-income earners.
Open Banking will help those who are underbanked or unbanked have greater access and usage to financial products and services that they need as well as improve the quality and introduce innovative solutions to all consumers. Open Banking could deliver tools that would support Canadians in improving their financial outcomes by enabling them to use their information to secure better rates or products, manage their small businesses more easily, and access new tools that would help improve their financial health. It has the potential to be particularly beneficial to small business owners, consumers facing challenges in managing their finances, and those with limited or non-traditional credit histories.
Open Banking offers Canadian small businesses more choice, control and security. It also offers a significant opportunity to access innovative tools tailored to their unique business needs, all of which have been designed to help them grow and prosper in a digital age.
For Open Banking to be successful in Canada, consumer awareness and education will need to be at the forefront. For most stakeholders across the Canadian ecosystem, the benefits and potential use cases for Open Banking are quite familiar. Therefore it will be the responsibility of all players, including the Canadian government, banks, fintechs, and others, to help consumers and small businesses to navigate the new world that Open Banking will usher in. With the opportunity and ability to learn from other first-to-market players such as the UK and Australia, the Canadian government, FIs, and fintechs need to create tools and other resources to help Canadians become financially literate and feel empowered about their money.
On 21 March 2022, PWC’s Digital Banking Director, Abraham A. Tachjian was appointed Canada’s Open Banking Lead. The final report proposed an 18-month timeline for the initial phase of implementation during which time the Open Banking lead, with the help of technical experts, would design the mechanics of an Open Banking system, and third-party service providers could seek accreditation and test their data transfer processes. Currently, the final report proposes the implementation to be complete by January 2023.
Michelle Beyo is the CEO & founder of FINAVATOR, an award-winning fintech and Payments consultancy. She is also a strategic advisor to fintechs, a Money 20/20 Rise Up alumni, a Global Council Member of Women in Payments, the Membership Chair at Canadian Prepaid Providers Organisation, a Payment Advisor at National Crowdfunding and Fintech Association of Canada, and a Board Member at Open Banking Initiative Canada. Michelle started FINAVATOR as she is passionate about payments and financial inclusion. She has 20 years of extensive industry experience driving innovation across the retail and payments industry. Michelle Beyo was named among the ‘Top 30 Best CEOs of 2021’ by The Silicon Valley Review and FINAVATOR was awarded ‘Most Influential Leader in Fintech Consulting – Canada’ in 2020.
FINAVATOR is an award-winning consultancy focused on bridging the gap between fintechs and traditional banks. When working with startups, the company is passionate about driving growth through strategic partnerships, enterprise relationships, and reaching new customer segments. With traditional banks, FINAVATOR work to help evaluate fintechs to find the best innovation partners for its clients to help them expand their service offering to their customers. The company works with its clients to build innovative payment and digital services that allow them to stay competitive, offer their customers relevant solutions, and find new revenue opportunities. FINAVATOR has expertise in a variety of areas including Payments, Prepaid Solutions, Open Banking, Crypto Custody, Challenger Banks, Ecommerce, Affiliate Marketing, Micro Loans, Rewards, and Loyalty.
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