The state of Open Banking and Open Finance in the US and Canada – Interview with FDX (Part 2)

Why is Canada a hotspot for fintech growth as this new business model takes shape? In your opinion, what timeline is the industry looking at for implementation? 

Canada has indeed experienced a lot of fintech growth and investment over the last several years. Canada has both consumer demand and the availability of the FDX API in place. We are also starting to see bilateral agreements and cross investments between banks and fintechs occurring. Further, the Canadian government has orchestrated Open Banking consultations with industry and stakeholders for several years, so there has been momentum and progress toward some level of Open Banking regulations for a while. 

What are your thoughts on The Advisory Committee on Open Banking’s final report on Open Banking?

FDX released an official statement on the report, so I have provided that below rather than try to restate it in shorthand and mess it up!)

The Financial Data Exchange (FDX) is working with Canadian member firms to develop and adapt the common, global, and interoperable FDX API standard for the Canadian market. FDX aims to enable an open banking system in Canada that empowers users with secure and transparent financial data access so that they can better understand, leverage, and benefit from their financial data and improve their financial lives. In this regard, the Financial Data Exchange (FDX) wishes to acknowledge the recent release of the Advisory Committee on Open Banking’s final report. 

FDX is encouraged by the recommended principles for technical specifications and standards in the report as it echoes many of FDX’s own 5 principles of financial data sharing: Control, Access, Transparency, Traceability and Security. The FDX charter precludes us from participating in any policy or regulatory advocacy and therefore limits our ability to take any position on the report. However, FDX does note the report’s language and accompanying recommendations for consumer-centric technical specifications and standards and applauds the Committee for encouraging the continuation of work on technical specifications. Once the open banking lead is appointed and technical experts in place, we look forward to working with them to ensure that the FDX API and accompanying standards exceed the principles and helps achieve the goal of an open banking system in Canada that enhances consumer welfare, supports innovation and economic growth, and mitigate risks currently in the market.                                                               

What are the markets` approach towards data sharing and consumer education regarding Open Banking and its implication? 

This is a great question and one that I think gets overlooked or improperly prioritised. 

On one hand, we have seen a lot of writeups and hand wringing about the limited consumer awareness or understanding of the term of Open Banking. In fact, even in markets that have really taken the lead on Open Banking regulation like the UK, there is still a significant amount of the population there that has no idea what Open Banking is. On the other hand, if you ask consumers about how they use certain fintech apps or what financial services technology they use, then the awareness of data sharing and the concept of Open Banking shoots up.

I raise this because I think measuring consumer awareness of a term or framework of regulations is the wrong metric. In other words, I don’t have to name all the parts of my car engine or how they work together to get a driver’s license, I just need to know how to safely operate the vehicle. 

In the same way, I think we should measure, and focus education on a consumer’s awareness of the way they can use their own financial data to benefit their financial lives. In addition, we need to educate consumers on what they should expect in terms of the data sharing process, consent, and transparency, and in some cases, what their legal rights are, when it comes to accessing and using their own financial data.

At FDX, we think about this from the perspective of our Five Principles of Data Sharing. The five principles are Control, Access, Transparency, Traceability and Security, and FDX believes a consumer-centric approach to Open Banking and financial data sharing must robustly address each of these 5 principles to ensure that all market participants serve the needs of consumers.

Who are the pioneers in Open Banking in the US and Canada? 

With more than 200 FDX members in the US and Canada, I can provide context in a few ways:

First, I think the industry pioneers in Open Banking are the firms willing to break out of their respective financial institution, data aggregator or fintech silos and reach across the ecosystem to work together and collaborate on Open Banking and Open Finance . I say this because there is a bunker mentality that can creep into different industry segments to either wait on regulators or just try to hold onto status quo. However, the firms that are seeking out partnership now, figuring out how to serve shared customers and operating in this new reality of consumer data ownership are the ones that are breaking new ground in Open Banking today.

In fact, I get a front row seat to this type of collaboration at FDX. No regulator has mandated the creation of our industry standards body, and no one is being forced to work for hours and hours within our over 30 different working groups and task forces to develop and push adoption of a common API standard, but our member firms are doing exactly that every day.

Secondly, I think the consumers are the true pioneers. In the same way the private sector has utilised data for years to better understand and monetise their operations, Open Banking and Open Finance empowers consumers to harness the value of their own financial data for their own benefit. Without this key understanding and consumer demand for innovative financial tools and services, we wouldn’t even be talking about this today.

What is on the agenda for the future of Open Banking, how do these markets plan towards an Open Finance outlook, and what timelines do you have in mind for Open Banking? What are your predictions for Open Banking moving forward in the US and Canada?

Well, as you may have noticed, I try to drop in the term “open finance” just about every time there is a question about Open Banking . I do this because it is the natural progression, and frankly where consumers and the marketplace already are. Open Finance is just a broader set of financial data beyond traditional banking data and we are seeing consumer demand explode for investment and brokerage data, insurance data, utility account data, bonus, and rewards data, etc. All to say, I really think Open Banking discussions will become Open Finance discussions in the year ahead, and after that, we will soon just be talking about “open data” as this phenomenon moves beyond the boundaries of finance to consumer’s utilising every facet of their own data for their benefit.

In terms of the overall outlook, I do think we will see significant movement toward some type of Open Banking regulation in the US and Canada in 2022. I’m not sure if everything will be finalised in the next 12 months, but I think this will be the year we see concrete proposals, rules, and regulations. I also think we will see even more coalescing around the FDX API as the common and royalty-free industry standard. In sum, I believe 2022 will mark the moment when Open Banking and Open Finance in the US and Canada truly moved from just a regulatory driven or market driven question to a hybrid approach that seeks a balance between regulation where needed and allowing the market to continue to innovate and thrive. 

About Tom Carpenter

Tom serves as the Director of Public Affairs and Marketing for the Financial Data Exchange (FDX) where he leads the organisation’s communications, thought leadership and brand development among financial industry stakeholders, policymakers, and the media. Prior to FDX, Carpenter spent almost two decades developing and advocating complex public policy in Washington – beginning as a legislative aide in Congress and then as federal lobbyist and senior government affairs executive managing legislative advocacy campaigns and policy brands for clients from Fortune 500s and trade associations to startups. 

About FDX

Financial Data Exchange, LLC is a non-profit organisation dedicated to unifying the financial industry around a common, interoperable, royalty-free standard for secure and convenient consumer and business access to financial data. FDX empowers users through its commitment to the development, growth, and industry-wide adoption of its API, according to the principles of control, access, transparency, traceability, and security. Membership is open to financial institutions, fintech companies, and other industry stakeholders.