Open Banking is a hot topic in the finance world; but for a system that touts improved clarity, many people are unclear as to what exactly it is. This past September, the Federal Minister of Finance established an advisory committee to debate the merits and risks of an open banking system in Canada, meaning we could see this system like this in the near future. Here's everything you need to know about what could be the next frontier in Canadian banking.
The concept of opening banking is that consumers and small businesses will be able to share financial information electronically in a secure, and fully-consenting, way with third-party financial institutions and financial technology companies. In short, you share your information, and in exchange you get expanded (and easier-to-use) financial products and services.
By having full access to financial data, and the ability to share it, consumers would be able to use that information to gain a better understanding of their finances and obtain better access to money-saving comparison tools.
This could mean:
For similar reasons, Open Banking could mean more streamlined and personalized services for small businesses, as well as consumers. Here are the potential benefits:
The problem facing Open Banking is the concern over reduced cyber-security and privacy. Even the name makes it sound like everyone, at any time, would have access to your financial information.
Equitable Bank is one of the financial institutions that are advocating for open banking in Canada. The company feels this system would provide a clearer financial picture for consumers, easier portfolio management, and reduced administrative fees.
To address concerns over privacy and security, this bank is asking the federal government to be involved in the process and to serve as an unbiased gatekeeper. In their view, Open Banking would include a robust accreditation process for third-party companies wanting access to a customer's information. The government would also create a digital identity for consumers, similar to a federally-issued passport, for further verification and protection.
Equitable Bank actually argues Open Banking would create a more secure system than our current one because it wouldn’t rely on services such as screen scraping that simply pull information off a website. Authorities would also make sure that customers understand the obligations and associated liabilities with Open Banking and ensure that all information sharing would be done with informed consent.