Canada moving towards a hybrid open banking regime

The government sets standards for financial data exchange, mandates participation and sets rules around cybersecurity, technical standards and dispute resolution, says Hwan Kim, a partner at Deloitte Canada in Toronto who specializes in the financial services sector .

“They are not the actors, but they define the playing field,” summarizes Hwan Kim about the role of the government.

The private sector, for its part, will be responsible for implementing the many uses ofopen banking.

Canada could be moving toward a hybrid model of open banking, in which he industry pursues market-driven goals within government-defined parameters.

For example, Budget Implementation Bill C-69, which received first reading on May 2, includes deposit accounts, investment accounts, payment products and credit lines. credit in its definition of financial data.

Once the rules are established, the success of theopen banking will depend on the ability of the private sector to make best use of the framework, believes Hwan Kim.

Budget 2024 encouraged the expansion of access to credit as one of the ways to use theopen banking.

Vancouver-based Spring Financial provides credit to people who don’t qualify for traditional loans, such as newcomers and young adults.

According to Tyler Thielmann, president and CEO of Spring Financial, the application process includes screen scraping (screen scraping) or sending bank statements to the lender. Nine out of ten borrowers apply using a mobile device, making it difficult to email or fax documents.

“It’s a very arduous process and there’s so much friction. It’s very painful, comments Tyler Thielmann. We literally support hundreds of clients through this process every day. »

Additionally, screen scraping doesn’t always work, Tyler Thielmann said, and consumers must download their statements or scan hard copies if that fails. L’open banking would remove this friction by providing lenders with an application programming interface (API) that would connect them directly to the borrower’s bank.

Currently, screen scraping is done through an intermediary called an aggregator, which scratches a consumer’s account and transmits that information to the receiving financial institution, explains Tyler Thielmann. Even when theopen banking will be fully implemented, fintechs will still need to use an intermediary, as they generally do not have direct APIs to banks.

Symcor is one such intermediary. One of the company’s current services is payment clearing for financial institutions, utilities and insurance providers. Symcor has been working on an open banking data exchange for Canada since 2018 and can create an API on behalf of a bank.

Symcor chose to follow the standard from the Financial Data Exchange (FDX), a non-profit industry organization, which was implemented in 2018 and is now used by more than 60 financial institutions in Canada and the United States, reports Saba Sharif.

“If the government were to choose something other than FDX, we can reduce the gap,” she says. We will update it from our side. »

Any business can receive financial information throughopen banking, provided it passes regulatory accreditation and receives consumer consent, explains Saba Shariff. Consumers might be willing to share information as long as the company offers them something meaningful in return.

“We don’t know what the use cases will be,” she emphasizes.

Retailers that offer loyalty programs, for example, don’t have insight into consumer habits beyond their own network. Access to consumer transaction data can help them understand where people are shopping, what they’re buying and how to personalize offers for customers, says Hwan Kim.

Businesses with younger customers will likely benefit fromopen banking, as younger people are more likely to be comfortable with new digital features, according to Hwan Kim. Businesses that engage more frequently with their customers digitally will also benefit.

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