NCFA Canada | Mahi Sall | Oct 13, 2022

Thought Leadership Series of Expert interviews and insights related to a made-in-Canada open banking regime

The National Crowdfunding & Fintech Association of Canada (NCFA), true to its mission of providing education, industry stewardship, networking, growth, and funding opportunities for innovative financial technologies and related sectors, is pleased to launch a brand new thought leadership series on Open Banking led by Berlin-based NCFA ambassador and independent expert in Fintech-Bank Partnerships Mahi Sall.

NCFA is proudly contributing this thought leadership series to help shape a system that will bring profound changes in how financial services will be created, distributed, and consumed in Canada over decades to come.  Our hope is that Canada’s Open Banking system will improve economic outcomes, improve market efficiencies and competitiveness, and enable consumers to access new and innovative financial services in a way that is secure, efficient, and consumer-centric.

The series is called ‘Canada’s Open Banking Journey’ and aims to aggregate international and domestic perspectives of Open Banking/Finance expert practitioners from around the globe to advance dialogues, key considerations, and explore potential solutions for the development of a made in Canada open banking regime with the following timeline:

• Sep 2018:  Canada’s Open Banking journey officially began when the government established a multi-stakeholder Advisory Committee tasked to conduct a review into the merits of Open Banking
• Apr 2021:  Advisory committee publishes final recommendations
• Mar 2022:  Government appoints Abraham Tachjian – PwC Canada as Canada’s Open Banking lead responsible for convening industry, government and consumers in designing the foundation of the system of Open Banking for a launch in 2023.
• Oct 2023:  Phase 1 implementation expected

NCFA Canada's Open Banking Journey Series:

Interview Begins

Open Banking creates so many new business opportunities for both fintechs and banks. But the biggest winner is the consumer. The innovation around transaction data is endless.

-- Soren Nielsen, Chief Operating Officer, Subaio (Danish Fintech)

Mahi Sall:  Please tell us a bit about yourself.

Soren Nielsen:  I am Soren Nielsen, Chief Operating Officer at Subaio. Subaio is a Danish fintech that is unlocking revenue for financial companies through insights and actions into recurring payment data. One of the major data sources that Subaio works with is PSD2 open banking data. I’ve also been a former founder and CEO of the fintech ERNIT that was among the first Danish companies to get an Account Information Service Provider license (AISP), while I was a regular member of the European Banking Authority (EBA) roundtable discussions regarding the implementation of the PSD2 regulation.

Mahi Sall: Common Rules represent a key component of Open Banking System Design, with the premise that they create a level playing field which eliminates the need for bilateral arrangements between Open Banking participants. 

Speak about situations that would call for bilateral arrangements in an open banking environment that thrives on common rules.

Soren Nielsen: Common rules will always be the lowest denominator in my experience. That is why several banks are delivering premium APIs to fintechs that they are collaborating with that go beyond the common rules, while there are standard APIs for the common rules. This might also need to be the case as the banks in Europe are not earning anything from just giving out their APIs for free. We for instance see bilateral agreements necessary if you want to give a particular fintech access to common bank account data without having to get consent from both parties.

See:  Canada’s Open Banking Working Committees Flag ‘Governance’ as the Latest Gap

Mahi Sall: Another key component of Open Banking System Design is the Accreditation Process. Canada’s Advisory Committee on Open Banking recommended to exempt federally regulated banks from the accreditation process, and similar consideration for provincially regulated financial institutions to be discussed. 

What major frustration points relative to the accreditation process can be anticipated and how to address them?

Soren Nielsen: One of the biggest frustration points has been just to be able to define a payment account. So the definitions of these various things like payment accounts, sensitive payment data and fallback solutions need to be defined early on. One of the biggest frustration points from the fintechs perspective have been that the regulators have not dictated the standards for doing open banking. They have left these standards to the market, which has created a lot of frustration and delays. In the UK they have been much better at handling this. They have had the Open Banking organization and also had the biggest banks forced into these processes which has speeded everything up. If you leave the standards up to the market, then you will get delays because there will be two-folded interest in the beginning. The banks will want to delay everything as much as possible and the fintechs will want everything today.

Mahi Sall: The third key component of Open Banking System Design are Technical Specifications & Standards with two approaches currently dominating the landscape: single standard approach (e.g. UK, Australia) and multiple standards (e.g. US, EU). Canada’s Advisory Committee left both approaches open for exploration. 

Can you speak to the advantages and shortcomings of these approaches?

Soren Nielsen: I’ve worked with the UK approach and the EU approach. Like stated above I believe that the UK approach is creating more innovation quicker because the standards have been set more central and the bigger banks have been forced into it. On the other hand I’ve heard horrible stories from the UK where the banks have changed small parameters in their APIs on a nearly daily basis so that the aggregators constantly needed to change the APIs on their end to follow the change. This was solely done to ruin the experience for the aggregators and their customers.

The EU approach caused a lot of confusion from everybody in the market. Some followed the Berlin standards and others followed the open banking standards, while some countries had their own standards like they had in Poland. I personally like the UK approach better, but it means that there are a lot of discussions and decisions that need to be done early on in the process.

Mahi Sall: In the early days of Open Banking some European banks provided in addition to APIs a Modified Customer Interface (MCI) as alternative means for third party providers (TPPs) to get access to customer data. Would you foresee the need for Canadian banks to deploy fallback options to existing APIs?

Soren Nielsen: I’ve heard a lot about these fallback options, but I am not sure how well they worked. I just know that in the Danish market a lot of the aggregators only recently went from the fallback solution to the ‘real’ API solution, because a lot of the banks got extra time with the fallback solution because they were not ready. The fallback solution has been bad for innovation, and I think that it is just another way for banks to delay this progress.

Mahi Sall: What are some of the lessons you’ve learned in terms of Open Banking test designs and implementation.

Soren Nielsen: Not sure that I have so much insight into this. I know that there has been a big debate on redirect versus embedded versus decoupled integrations, but I am not sure if that is what you are asking here. I know that we’ve had some sandbox environments for test purposes, but the issue has again and again been that the sandboxes were never a mirror of the production environments, and because they did not have real data, but only dummy data or test data, the use cases that were able to be tested out were few. Sandboxes have not been the answer to this. I think they have been good for the banks to see how the fintechs would act within them, but from the fintechs perspective they have been a big waste of time.

Mahi Sall: Chief among the factors affecting the take-off of Open Banking is low adoption by consumers. What could Canada do differently than other jurisdictions in order to pre-empt this risk?

Soren Nielsen: Low adoption has been fueled by bad customer experiences. When banks opted for redirect and decoupled solutions instead of embedded solutions this got users to not use the services. At the same time the banks were making their own seamless embedded versions, so of course the users would opt for the banks own solutions. The same can be said for the 90 day rule where you as a user had to consent every 90 days. This is now in the midst of being changed into 180 day consent, which is better, but I guess we are still not really there. The same can also be said for the granularity of the data exposed through the APIs. If you for instance in your own bank’s interface in a transaction for a mortgage can see how much debt you still have left on the mortgage, but this type of information is not shared in the open banking APIs then there will also be a lower adoption rate. 

See:  Open Banking to Bring Multitude of Benefits to Canada in 2023

Mahi Sall: Drawing upon your observations, what are some of the quick wins in terms of Open Banking use cases that banks and fintechs should prioritize rolling out?

Soren Nielsen: The most obvious one is to get all your accounts in different banks in the same interface. From here you can then do a very rough budget in a Personal Financial Management (PFM) like setting. I do however believe that even though this was some of the first things that were built the users were not very interested in them. It would be much more interesting if you through open banking data could for instance use this type of data for credit checks or if you could use your credit history with one bank to open an account with another bank. The same can be said for the data insights into for instance the users recurring payments, but here I am of course biased as this is one of the use cases that Subaio is working on. But we have seen that this has been used again and again as examples of how to make use cases on top of this data stream. I also think that it is important that the data should be both from individuals and from businesses. In the EU the opening of this data has meant that so many ERP systems and cash management systems like Pleo have thrived with new types of data. In the longer run there will also be more account to account payments which will make payments quicker, cheaper and more safe.

Mahi Sall: What role does talent play in developing a thriving Open Banking system?

Soren Nielsen: A bigger part than many people think. It is going to be people (talent) that will think of the new use cases within this type of data. The imagination of talents and the quest for solving problems from talents will be one of the main drivers of this. In Denmark we’ve also seen individual talent like the likes of CEO, Rune Mai, from Aiia who has driven a constant agenda from the users perspective, but also wanting to not only spend time on his own business, but also paving the way for other businesses as well. By this I mean that some CEOs only care about their own business and making money, while others just can’t help but think about the ecosystem, the users and all of the wasted opportunities if nothing is being done. You need that type of talent. And you need the talent of gifted developers to execute the dreams of the visionaries.

Mahi Sall: Speak about major open banking incidents and how to risk manage them.

Soren Nielsen: Not sure that I can think of any. A lot has been said of what could go wrong, but I haven’t heard of big open banking incidents.

Mahi Sall: Talk about Open Banking limitations and the most common misconceptions people have about it? 

Soren Nielsen:  The biggest misconception is that everything would change when open banking came into force. Those people were very disappointed. We actually saw a lot of creative people leave the financial business because they thought that things would change when open banking came into effect. But it is a long road. It is not a sprint. It is a marathon. A lot of people also thought that it would be fintechs against banks. That has also panned out as only very few fintechs are actually attacking banks directly, but I think it is going to be a much slower attack where innovation will gradually happen in fintechs who will get traction with the segments that the traditional banks don’t want to focus on. You can already see that now with immigrants, small business owners, students and young people who are the ones that Revolut, N26, Lunar are targeting. They give lower margins, but they are the ones where the innovation will happen as also stated in the book The Innovator’s Dilemma by Clayton Christensen.

The success of Open Banking will not be a sprint. It is a marathon. If fintechs believe that everything will change from day one they will be very disappointed, but if banks believe that nothing will ever change they will likewise be very surprised.

Mahi Sall: What does Open Banking mean to banks and fintechs, and how does it affect the relationship between the two?

Soren Nielsen:  At first it was seen as the major attack. Suddenly banks were no longer the masters of the data. But then it turned into more of a collaboration. There are still sting operations where fintechs attack certain parts of a business model from the banks like for instance lending for SMEs, and in general I think that fintechs will ask for more and more data and more and more openness, while the banks always will go the other way.

Mahi Sall: How could banks and TPPs best prepare for Open Banking and extract the most value out of it?

Soren Nielsen: Understand each other better. Fintechs move fast or they die, while banks will die if they move fast. Understand that those are the culture differences, and that fintechs thus are inclined to taking bigger risk, while the reverse is true for banks. Once this premise is understood then you can set expectations on if open banking is a threat or an opportunity. Understand that some banks will see it as a threat, while a few will see it as an opportunity.

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Links you may be interested in:

About Subaio

Soren Nielsen

Mahi Sall is an Ambassador of the National Crowdfunding & Fintech Association of Canada “NCFA”, and an Expert on Fintech-Bank Partnerships. He is based in Berlin, Germany.

The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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