After years of vertical integration and regulatory conditions largely protecting financial services from competition, things are changing. Consumers are demanding access to 3rd party banking apps, regulators are whispering about "open banking,” and technology is quickly adapting to safely and securely exchange large amounts of sensitive information. How is the financial services landscape going to adapt to this new world?

Canada is known for its strong, globally competitive financial sector and for having one of the most stable and resilient economies in the world. Based on these conditions, Canada was poised to be a frontrunner in the adoption of an open banking/consumer-directed financial system. Yet in January of 2018, the UK established the world’s first open banking regime, quickly followed by countries in the EU and Australia. Meanwhile, the Canadian government has been a little slower to adopt as it continues to assess its role in establishing a consumer-directed finance system.

Open banking defined

Open banking, or consumer-directed finance allows for safe and seamless sharing of personal, financial and transactional data with third-party financial service providers. Third parties analyze that data to offer customized services that empower consumers, saving them both time and money, and in some cases, the ability to make better value-based decisions.

Underpinning the entire operation of an open banking system is a fundamental shift in data and who controls it. In 2020, Canadian consumers have very limited control over their personal, financial and transactional data. Accessing and sharing data is difficult because the financial institutions that collect and store it still predominantly control how its data is shared.

The data workaround

Knowing this, the many Canadians who have been rapid adopters of new banking technologies, including data aggregators and robo-advisors, may be surprised to learn they do not have ultimate control of ‘owning’ their own financial data. This is the reason several fintech companies developed a technological workaround called ‘screen scraping.’ By using a client’s banking login credentials, an accredited third-party gathers and extracts a consumer’s financial and transactional data. Screen scraping was not supposed to be a long-term solution but has become the go-to method in the absence of a viable alternative. While screen scraping is convenient for consumers, the trade-off is they relinquish control over the scope and duration a third party has access to their data. Consumers also lose control over how their data is used. Most stakeholders feel that screen scraping is not only inefficient, it creates too many security, privacy and liability concerns for all parties involved. To ensure the best customer experience while prioritizing security, financial institutions need to ensure customers are well equipped to safely engage and manage third-party services.

The ecosystem of open banking

Open banking’s potential to reshape Canada’s financial industry and shift the entire banking experience in favour of consumers, immediately prompted industry players across Canada’s financial sector to start seeding an open banking ecosystem. This ecosystem holds scalable networks of data, users, and resources that can be accessed on demand to support agile innovation. Through established networks, banks, fintech and tech giants are collaborating with the freedom to fully explore the bounds of open banking. Many are piloting use cases built with APIs [application programming interfaces] and other emerging technologies.

“Even though a formal regulatory framework for Canada has yet to be defined, it’s clear that customer expectations are rising and rules of the game are changing. As governments and businesses contemplate reform, ATB continues to unleash innovation and investment strategies to advance the benefits of open banking. Through our Open ATB developer platform, and events like our most recent Open Finance Hackathon, ATB is enabling creativity and connections to help accelerate innovative new banking models and value-add solutions that embrace data sovereignty at their core,” says Sue McGill, senior vice president and head of innovation at ATB.

Barriers to open banking adoption

While there is groundswell support from industry, government and consumers to adopt open banking, the scale and scope of some of the challenges track with the system’s delayed uptake within Canada. Significant roadblocks including privacy issues relating to data sovereignty, the centralized control of consumers' digital identities by financial authorities along with serious security concerns have put considerable strain on industry and government. “In order to maintain momentum amid so much uncertainty, organizations and governments need to hold innovation at the centre of their operation. Collective action is a powerful force, and now more than ever tackling issues like data privacy, and self sovereign identity will require a collaborative approach to help us move closer towards the future where the benefits of all stakeholders are aligned,” says McGill.

The way forward: putting the data back in your hands

For open banking to take hold in Canada and for all stakeholders to realize its full benefits, consumers need to be given control of their personal information and online identity so true data portability is no longer a barrier to entry. Open banking implementation is the first step towards a greater future of decentralization and the adoption of sovereign ID (self-sovereign identity or SSI). SSI will allow individuals to own and control all of their personal data spanning across every industry. It will also allow businesses/vendors/third parties to verify their ID securely without having to rely on a single institution or authority.

“All of these challenges and significant risks in the realms of privacy, security, liability and transparency will need to be addressed by government and industry players coming together. Through cooperation and innovation, stakeholders can build critical technology infrastructures, and regulatory frameworks to usher in systems such as open banking to better the lives of Albertans, Canadians and citizens around the world.”

The world of open banking is expansive and provides for a lot of exploration. If you're interested in learning more, ATB's Ventures site provides a full suite of deeper resources around the topic.