Open banking will create a playground for competition and choice: industry players
Industry players welcomed the open banking measures in the budget, saying it could spur competition in Canada’s lending landscape.
Earlier this month, the federal government announced plans to move forward with open banking initiatives in its 2024 budget. Also referred to as consumer-driven finance, open banking would give consumers the ability to securely share financial data across institutions and apps to take advantage of different services like wider options for loans or managing a budget.
“I think the biggest advantage is really the increase of competition in the market…It will impact the customer because they will have more choices (and) more features. You’re going to see more innovation in the market,” Mahima Poddar, the group head of personal banking at EQ Bank, said in an interview with BNNBloomberg.ca on Wednesday.
“And the reason for that is that once you break constraints around data and they can move more freely, what it does is it gives customer autonomy (and) the ability to choose which financial provider they want to work with without the friction of the switching pain that exists today.”
In the budget, the federal government announced the Financial Consumer Agency of Canada (FCAC) will oversee, administer and enforce Canada’s open banking framework. Open banking measures in the budget build on the 2023 Fall Economic Statement that announced the federal government would introduce legislation to establish an open banking framework in Canada.
Poddar added that EQ Bank has been a long-time advocate for open banking.
‘Control of your financial information’
Hanna Zaidi, the VP of payments strategy at Wealthsimple, said in an interview with BNNBloomberg.ca Thursday that in other markets where open banking has been adopted, like the U.K. and Australia, it put “downward pressure on pricing and the types of products that are available.” She said that Wealthsimple advocates for the adoption of open banking and has been meeting with the Department of Finance on the matter.
“Open banking means that you, not your bank are in control of your financial information. So right now, if you look at your terms and conditions, banks actually own your financial data,” Zaidi said.
As an example, she said if you want to switch to another bank or apply for a mortgage, none of the data needed for an application would travel with you “and you have to start from scratch every single time.”
Poddar said open banking gives consumers ownership of their financial data.
“So they can, for example, start to use their banking information to get credit or debt from other institutions that previously will have only relied on a credit score for example. So it’s really increasing the choice available to the customer,” she said.
It would also open up the possibility for customers to have multiple financial relationships, Poddar said.
“And so the incentive for fintech or new innovators to enter the market is so much stronger because the barriers of entry are low enough,” she said.
Additionally, Poddar highlighted the changing landscape could benefit small businesses.
“I think one area that you can see a lot of impact around is small business lending because the access to credit for small businesses has been more limited than personal banking, for example,” she said.
Poddar added that open banking could provide small businesses with more access to credit “which is a fundamental ingredient in growing a small business venture.”
‘Devil’s in the details’
Despite the recent open banking announcements, Zaidi said “the devil’s in the details” on how the new framework will be executed. She added that she would like to see tangible timelines this year on when the program would be operational.
“At the end of the day, these are technical specifications. And so what we haven’t seen so far, what I’m hoping to see really soon is what are the technical standards that the industry should be using,” Zaidi said.
While there are a few different potential standards the government could adopt, she said she is hopeful the government will give a signal around what a potential standard might look like so companies can start planning.
“We could have all these frameworks in place, we can decide a technical standard, but if you’re not mandating banks to share a minimum level of data, and that data is consistent across financial institutions, we’re just not going to have the benefits and the network effect that we’re hoping for when it comes to open banking,” Zaidi said.
With files from The Canadian Press
This article was first reported by BNN Bloomberg
