NCFA Canada | Mahi Sall | Oct 5, 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 is a huge opportunity for banks. But banks need to approach it with the right mindset. It is not a compliance project, it is a business model transformation.

-- Huw Davies, Chief Commercial Officer OZONE API (UK)

Mahi Sall:  Please tell us a bit about yourself and OZONE API.

Huw Davies: I am Huw Davies and I have over 24 years experience in payments and financial services, delivering transformational go to market strategies at both major corporations and startups. I have recently led the ecosystem growth at OBIE i.e. UK’s Open Banking Implementation Entity, driving adoption and usage. Prior to this I have  undertaken executive roles at Token (CCO), HSBC (Global Head of Payments), MasterCard (Head of Emerging Payments) and Barclays. I also sit on the Advisory Board for the Emerging Payments Association.

Ozone API are the pioneers of open banking with the founding team having led the development of the UK open banking standard. The Ozone API platform now helps many banks around the world to deliver their high performing, standards based open APIs to help them adapt to and thrive in this new world. We also work with regulators and central banks around the world to shape open banking standards and deliver the technical foundations for a thriving open banking ecosystem.

• CEO, Chris Michael, led the development of the UK open banking standard, chairing both the OBIE’s API Forum and Technical Design Authority.
• Freddi Gyra, CTO, has been the lead architect of the UK open banking standard, and deputy chair of the OBIE’s Technical Design Authority; and
• Huw Davies, Chief Commercial Officer, led the ecosystem growth at OBIE, driving adoption and usage.

We founded Ozone as we saw how difficult, expensive and time consuming banks were finding it to deliver high quality, standards based open APIs.

The Ozone API platform is used by over 50 banks around the world to deliver high performing open banking and open finance APIs. We provide the technology to deliver compliant open APIs and go way beyond compliance, making it easy to monetize open finance globally. We understand standards better than anyone else and we support all global standards and are actively involved in developing the next generation of open banking standards.

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.

Huw Davies: The common rules should help establish trust and the operating foundations of the ecosystem. For example,

• Who is allowed to participate and what minimum criteria must they meet in order to participate (for example the authorisation requirements for TPPs)
• What are the roles within the ecosystem, for example
  • Account / data provider
  • Third party (there could be different terms and combinations), for example:
    • Account information service provider (movement of money and not just access to information is key to effective financial management)
    • Credit provider
    • Payment initiation service provider
    • Digital identity service provider
  • Technical service provider - a technical enabler (for example providing connectivity to banks along with data enrichment & categorisation and enabling tools) who is not playing a regulated role.

• How is trust established - this is designed within the standards and helps determine the technical requirements for establishing trust between participants, for example digital certificate requirements and access to authorisation status (through a list or directory)
• What are the regulations, more specifically
  • What is mandatory (and must it be free or can it be charged for by account providers)
  • What is not mandatory but is envisaged and even encouraged in the rules framework and standards
• What happens when something goes wrong?
  • Who does the customer go to for redress
  • How do the parties work together to resolve
  • What standards and service levels are expected
  • Who is liable for any loss (this will differ based on the scenario)

These are just some of the areas of consideration. The common framework could go beyond regulatory minimums to create a framework for a more commercial ecosystem. As we look around the globe there are different models.

In the UK the “common rules” were broadly captured within PSD2 and the CMA Order. This created a framework for the regulatory minimums. Outside of this however, bilaterals are being created between banks and TPPs.

The first real example of this is to access Variable Recurring Payments functionality (essentially a long lived payment consent which could enable many recurring and embedded payment use cases). Whilst the technical standards provide the capability, the regulatory framework stops short. As such banks and TPPs are developing bilaterals covering areas such as:

• Commercial terms (e.g. cost per payment initiation)
• Liability (who takes liability for disputed payments in different scenarios)
• Typical partnership framework clauses

The market recognises the complexity of a web of bilaterals between account providers and TPPs and in both the UK and Europe there are initiatives to create a common framework / ruleset / template agreement for commercial use cases.

Beyond payments this could also include areas such as:

• Identity attributes
• Account origination and service requests
• Enriched data

In other markets open banking may be underpinned by commercial frameworks. We are expecting a number of markets (e.g. Mexico, Colombia and others) to allow and enable commercial relationships between account providers and TPPs.

We are working with regulators in other markets on frameworks that go beyond just minimum mandatory requirements to enable a broad range of use cases and ensure balanced incentives to motivate account providers to implement open banking well.

Space should always be left for innovation between parties, so bilateral agreements can be a good thing. For capabilities to be adopted at scale and without unnecessary barriers to entry for smaller players however, common standards and common rulesets will be important.

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?

Huw Davies:  In the UK many TPPs have been frustrated at the time taken to get through the accreditation process. There have been particular issues with resourcing at the FCA which have impacted the authorisation timescales.

In many markets existing regulated roles (e.g. bank, payment institution, credit provider) may already provide sufficient confidence to automatically qualify for a role (e.g. as an account information or payment initiation service provider).

In Brazil the market still does not have a third party accreditation process. It is only existing banks and payment institutions that can leverage open banking access. This will act as a significant handbrake on innovation and frustration for third parties.

In Saudi Arabia as an alternative model the regulator started engaging with third parties very early to provide an innovation environment which sits alongside and as part of the accreditation process.

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?

Huw Davies: We are passionate advocates of a standards based approach and believe that the evidence is clear for markets to adopt a common standard and ensure a conformance certification regime.

In the UK the largest 9 banks are required to follow a common standard and go through conformance certification. The adoption and uptake in the UK has been significantly greater than mainland Europe where there is no common standard. Whilst many banks use the Berlin Group Standard it is more loosely defined and has no conformance certification process. As such there is significant inconsistency amongst implementations.

The key evidence is in the faster growth and adoption in the UK versus Europe. Around half of all European TPPs are in the UK despite the collective size of the European opportunity being much greater. In Europe there is still a significant reliance on screen scraping and credential sharing by the major TPPs such as Tink. There are also many reports outlining the challenges connecting to European bank APIs as well as performance issues.

Fundamentally though the key evidence point is end customer adoption. Uptake and usage is growing exponentially in the UK with the OBIE outlining 6m regular users, consistently over 1bn API calls per month and exponential growth in payment volumes.

Brazil has also recently followed this path with a common market standard and a much stricter requirement for banks / account providers to go through regular conformance certification. In Brazil we have seen the adoption curve racing ahead of the UK despite the fact that presently only banks can operate as TPPs (there is no TPP authorisation path yet).

We are working with a number of regulators around the world who recognise that a standards based approach is a far more certain route to create an effective ecosystem.

In fact the initial implementation in Bahrain did not mandate any standards and in 2020 the regulation was updated to mandate a common market standard.

In the Kingdom of Saudi Arabia the central bank (SAMA) is also following a similar path of building on global standards and ensuring a conformance regime.

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?

Huw Davies: If open banking is implemented well there should be no need for an MCI as a fallback mechanism. They serve no useful purpose other than to tick a regulatory requirement and a model based on customers sharing their bank login credentials with a third party is exceptionally hard to justify.

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

Huw Davies: In the UK and Europe TPP accreditation did not rely on any technical testing. The process was based more upon due diligence, risk assessment and fit with the regulatory requirements.

We would argue that too strictly defining a test regime (beyond fit with regulatory requirements) may hinder innovation.

However an important part of the process for a TPP to get live is to have a technical test environment to build on. A market sandbox and reference implementation of a standard provides TPPs with a model bank to build to and to test their propositions.

This can be invaluable in enabling TPPs to build and test (and potentially evidence) their propositions in advance of banks being ready with their own APIs. It also allows propositions to be built without needing access to real accounts and production data.

Furthermore the sandbox and reference implementation is a valuable tool for enabling TPPs to build to and understand new versions of standards in advance of them being implemented by banks.

We provide the sandbox and model bank in a number of markets and it has been invaluable to the ecosystem as well as providing a platform upon which to develop the conformance test suite.

In Saudi Arabia the central bank is using the sandbox / model bank as part of the TPP accreditation process.

Mahi Sall: As in other jurisdictions, financial inclusion is high on Canada’s Open Banking agenda. Please share examples where Open Banking failed to deliver on this metric. What are some of the key lessons learned that Canada could benefit from?

Huw Davies: Open banking should be a powerful enabler for financial inclusion and help reduce the barriers to access in the financial services market.

It is still relatively early days in the development of open banking around the world so there are no significant bodies of evidence on this topic, however there are a number of clear and obvious use cases.

In a number of markets open banking is powering a new approach to risk decisioning which reduces the reliance purely on traditional credit scores (which require a customer to already have credit relationships). By accessing account transaction history lenders can undertake better income verification and gain far greater insight into affordability based on a customer's real cash flow. For both consumers and businesses this means lenders can make better decisions, resulting in lower costs and less bad debt, which means greater access to credit for customers traditionally on, or outside the margin. As a very simple example, regular payment of rent or bills can be a powerful predictor of payment behavior.

In addition there are many examples of propositions aimed at helping those in financial distress. Using access to account information applications can help customers more effectively manage their finances, budget and reduce debt. A number of innovation challenges were run in the UK by Nesta and the OBIE also highlighted a range of propositions designed to help distressed customers take more control over their finances.

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?

Huw Davies:  Arguably open banking has become the de facto way of doing things in the UK for some use cases. For example how companies connect their bank accounts to cloud accounting platforms. Here there was no particular challenge with adoption as open banking is more efficient and effective than any other option. So adoption was easy. A point to note though is that the 90 day reauthentication rule in PSD2 created a significant challenge for users and third parties (the result of regulation trying to define the technical solution rather than the desired outcome).

There are also many use cases where it is increasingly becoming a common way of doing things without significant challenge. For example the use of open banking in credit application processes to remove the need for customers to provide lots of information (copy statements, overview of incomings/outgoings etc) and to enable better income verification and affordability assessment.

There are however some areas where adoption is still at the early stages. Payments is a clear example. In the UK payments are growing exponentially but there are a number of factors impacting the uptake, for example:

• The initial regulation and therefore implementations only focused on single immediate payments, resulting in a much more limited range of addressable use cases (variable recurring payments have since been built into the standards and are starting to be implemented)
• Whilst it is based on the faster payments rail, the TPPs do not get sufficient transparency around payment status meaning lack of certainty about payment (until the payment lands in an account)
• The tools to enable and manage refunds were limited
• The regulation only considers certain payment dispute types and therefore there is a gap across some of the more typically merchant disputes
• The adoption of new payments technologies by payment service providers and then merchants typically takes multiple years, particularly in a market where card payments dominate

But with all of that said there is significant momentum building and a number of very successful use cases. The UK tax authority implemented open banking payments and it has been a significant success (here).

Trust and familiarity can be significant considerations for consumers with the adoption of new capabilities such as open banking. Some key considerations are:

• Consistent user experience - can and should be embedded in the user experience standards
• Familiarity - could be achieved through big trusted brands adopting or through industry wide promotion (for example of a trust mark)
• Simple and understandable recourse should something go wrong

Canada should build on global learnings. Some key aspects include:

• Defining clear outcomes at the outset (ahead of detailed regulations)
• Ensuring common standards (technical and user experience) with a regime of conformance certification to ensure consistent experience for users
• Clear operating rules for customer recourse and liability
• Ensuring balanced incentives for the ecosystem (including banks) to ensure high quality implementations

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?

Huw Davies: We have developed a framework of the most immediate and / or impactful use cases and how they relate to standard and regulatory requirements. The use cases that are most prevalent in market like the UK include:

• Personal financial management - helping customers see a more complete picture of their finances in order to help them budget, save, reduce debts etc.
• Business financial management and integration to accounting platforms
• Improved credit decisioning - leveraging account information to make better credit decisions and have a more granular understanding of income and affordability
• Payments

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

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

Huw Davies: It could be argued that talent helps drive a thriving open banking ecosystem, but equally it could be argued that open banking attracts talent and investment.

Either way we have seen significant explosions of innovation where open banking has been implemented well. The number of innovative firms and propositions in the UK and the flow of venture capital investment into the market is clear evidence of this.

One thing that has helped is creating an environment to encourage innovation. Hackathons and competitions in the run up and at the early stages of implementation can drive significant engagement and accelerate progress. In the UK Nesta ran a number of challenges to reward innovative companies and propositions.

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

Huw Davies: No market has yet delivered the perfect implementation of open banking and therefore there are shortfalls or learnings in every market. These can and do limit both the long term potential and the short term uptake.

Whilst not intending to be comprehensive this can include:

• Scope - limiting the initiative to only certain account types (e.g. the payment account definition in PSD2) limits the potential benefit. Limited open banking can create significant value and benefit, but a complete open finance scope will deliver significantly more opportunity and value. As a user only being able to see and manage a part view of my financial portfolio is obviously limiting
• Poor / inconsistent implementation - lack of clear standards and a focus on consistent implementation will limit the opportunity. In Europe we have seen significant time and investment in just connecting to banks which slows and reduces the actual real innovation
• Limited functionality - as outlined with payments above, a limit to functionality will limit the potential use cases and value that can be unlocked
• Insufficient incentive - there needs to be balanced incentives for banks / account providers as well as third parties. Without balanced commercial incentives there is no reason for banks to do it well. That has slowed progress and reduced the level of innovation in markets where the framework did not easily enable balanced incentives.

A nuanced consideration is around establishing customer understanding and trust. Open banking is an underlying infrastructure and technical enabler, so customers do not need to be educated on what it is and how it works. That is particularly difficult due to the breadth of use cases that can be enabled. However, a key enabler will be consistent user experience and establishing trust in a context specific way.

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

Huw Davies: Whilst in markets like the UK there were fears of disintermediation of banks, the reality is that banks are some of the greatest users of open banking and it has led to unprecedented levels of partnerships between banks and fintechs.

For fintechs access to accounts enables them to deliver better propositions for their end customers. This is well documented and needs little explanation.

What we’ve also seen is many fintechs and third parties recognising the opportunity to partner with banks and help them innovate. A number of fintechs who saw themselves as bank challengers prior to open banking then switched their business models to become platform enablers for banks. For example providing white labeled PFM capability that banks could take to market.

The less well defined narrative is what does open banking mean to banks (beyond a regulation which must be complied with). I am a great believer that open banking is a huge opportunity for banks. By exposing services and capabilities via APIs banks can

• Reach customers that they could never reach through their existing brands and channels
• Embed their products and services at the point their customers need them
• Significantly accelerate innovation and the development of partnerships
• Create new revenue streams

But to achieve this banks need to approach it with the right mind set. It is not a compliance project, it is a business model transformation.

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

Huw Davies: We believe the best route to prepare the market is by allowing banks and TPPs to get their hands dirty and really test and understand open banking. Through the delivery of a sandbox environment and the tools and events like hackathons to really understand the technical implementation of open banking all participants can be more ready and ready to move faster.

Mahi Sall: Given the very tight schedule of Canada’s Open Banking roadmap, where do you think the balance must be struck to meet deadlines without significant trade-offs?

Huw Davies: Phasing will be key to ensure a successful outcome. We strongly believe that an implementation can be far more effective if time is spent up front considering

• What are the desired outcomes
• What are some of the key use cases to deliver against these outcomes

This approach can then ensure the initial frameworks and standards are focused on enabling these key use cases and not on solving all potential future considerations.

Mahi Sall: In order to ensure compatibility and interoperability at regional/international level, what must be thought of and accounted for at this early stage of open banking in Canada?

Huw Davies: Standards are key to interoperability. Whilst each market will have some local considerations, building on global standards and best practice (for example leveraging global security protocols such as the FAPI standards) is the most secure route to ensuring interoperability.

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Links you may be interested in:

Huw Davies

OZONE API

API Performance Stats (UK)

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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NCFA Canada | Mahi Sall | Sep 20, 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

“Banks should not try to circumvent the intended opening-up of formerly closed banking landscapes and data to the competition”

-- EY’s Dr. Francesco Pisani and Dr. Alexander Christoph

Mahi Sall: Please introduce yourselves and organization and highlight how you relate to Open Banking.

Dr. Francesco Pisani/ Dr. Alexander Christoph:  We are Dr. Francesco Pisani, Senior Manager Strategy and Transactions | EMEIA Deputy Startup Leader and Dr. Alexander Christoph, Partner |Transaction Strategy & Execution at EY Germany.

EY is a leading advisor in the financial services sector with years of experience in working with  incumbents and fintechs on topics related to Open Banking and alike. Digital and fintech are the  core of our work. Thanks to our deep expertise and the possibility to offer end to end services,  we provide advisory services that help our clients make reasoned strategic decisions. We  frequently publish thought leadership articles on topics related to fintech and digital banking ecosystems in books, industry magazines and more. We constantly foster the exchange within the financial service community at the local as well as the international level by hosting podcasts,  organizing events and meetings among the relevant parties in the ecosystem, engaging in working groups, supporting innovation hubs, and directly working with the most inspiring  personalities in the field. Over time, we have contributed to the success of multiple  organizations and empowered various policy makers with the right knowledge to continue  enhancing the development of open banking.

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.  

What situations would call for bilateral arrangements in an Open Banking environment that thrives on common rules?

Dr. Francesco Pisani/ Dr. Alexander Christoph:  Open Banking typically builds on the notion that banking and transaction data belongs to  the customer who should have unrestricted access to it. Standardized interfaces should facilitate typical use cases for customers and Small and Medium Enterprises (SMEs) to  allow for them to access their data and automate simple use cases.

However, besides standardized access it might be viable for two parties to align on specific user experiences, use cases and integrations that rely on additional functionality  – not data. Examples include embedded finance use cases, e. g. in-car payments.

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?

Dr. Francesco Pisani/ Dr. Alexander Christoph:  Accreditation should be based on clearly defined criteria that should be designed in a way to facilitate easy access for fintechs and startups and yet provide for the necessary protection for customer data, while not precluding the possibility to generate value for  the final users. If requirements are too strict, they will prevent competition and finally slow down innovation. It might make sense to set up “sandboxes” to facilitate fast innovations without requiring strict regulatory requirements.

“When too strict, accreditation requirements will prevent competition and slow down innovation.”

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?

Dr. Francesco Pisani/ Dr. Alexander Christoph: While the UK model defines data structures and functionalities in great detail for the TPPs and banks to implement, the EU model relies on industry standards to establish a  set of commonly used standards.

The advantages of the EU model are clearly the opportunity for large players to reuse  existing implementations and use that as a basis for a new standard. On the other hand,  it leads to a heterogenous landscape of “standardized interfaces” and makes it hard to establish “pan-European” value propositions.

The UK model on the other hand defines a common starting ground for everybody with clearly defined data structures and functionalities. However, it might be limiting  innovative forces.

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?

Dr. Francesco Pisani/ Dr. Alexander Christoph: API technology is well established today, so we would see no need for fallback solutions such as  “screen scraping” or other means of access.

FFCON22: REGEN - Speaker applications now open

Mahi Sall: Please speak about lessons learned in terms of Open Banking test designs and implementation.

Dr. Francesco Pisani/ Dr. Alexander Christoph: Every situation if seen in detail is somehow special and should be treated as such. However, some general principles still apply. Having an open and constructive discussion among the parties  involved that is supported by a good documentation has revealed to be a principle that could be applied to almost every similar circumstance. Furthermore, the right planning of resources and an agreed as well as feasible roadmap are paramount for the achievement of major milestones.

Mahi Sall: As in other jurisdictions, financial inclusion is high on Canada’s Open Banking agenda. Please share examples where Open Banking failed to deliver on this metric. What are some of the key lessons learned that Canada could benefit from?

Dr. Francesco Pisani/ Dr. Alexander Christoph: Open Banking alone should not be seen as the key to financial inclusion, but more as an enabler.  While Open Banking might help to tear down some of the barriers that prevent access to financial services to part of the population, there are other structural as well as societal  problems that might need to be addressed as well to achieve financial inclusion, especially in developed countries.

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?

Dr. Francesco Pisani/ Dr. Alexander Christoph: Adoption comes with convincing use cases for customers. Open Banking can hardly be promoted  on its own. In order to promote Open Banking as technologies, regulation and communication  should be straightforward and clear. Use cases should be developed that demonstrate to the future users how it makes their lives more convenient and better.

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?

Dr. Francesco Pisani/ Dr. Alexander Christoph: Most successful use cases that immediately show a convincing value proposition to customers are account aggregation and personal financial management (PFM). In addition, financial planning and wealth management will be attractive for customers.

On the SME side, integrations with accounting apps/ packages and tax apps/ packages can be  attractive as well.

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

Dr. Francesco Pisani/ Dr. Alexander Christoph: Talent has a significant impact on the success of Open Banking – especially on the fintech side.  On the tech side this is obvious, but also on the product side, Canada needs visionaries that can develop and sell value propositions to the customers.

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

Dr. Francesco Pisani/ Dr. Alexander Christoph: Customers might develop a view where with Open Banking in place, everybody can see their bank data. This might prevent them from accepting modified T&Cs that come with OB  regulations and adopt the new use cases that will be developed on that basis.

“API technology is well-established today, so no need for fallback options”

 

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

Dr. Francesco Pisani/ Dr. Alexander Christoph: In the early days of Open Banking, banks would be afraid that with APIs being in place, fintechs would be able to lure people away from bank web sites and apps to their own apps and finally take over the client relationship. However, experience shows that this is not the case. Banks today use fintechs to integrate their financial products into other value chains and use cases they were not able to address earlier.

See:  So what is financial exclusion in the era of Open Finance?

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

Dr. Francesco Pisani/ Dr. Alexander Christoph: Banks should not try to circumvent the intended opening-up of formerly closed banking landscapes and data to the competition. Instead, they should try to formulate their own value  statement and strategy around OB – what use cases are they foreseeing for their customers,  what apps and integrations will they be delivering to keep customers and SMEs happy?

Mahi Sall:  Given the very tight schedule of Canada’s Open Banking roadmap, where do you think the balance must be struck to meet deadlines without significant trade-offs? 

Dr. Francesco Pisani/ Dr. Alexander Christoph: It might help to go back to the main motivations that pushed such agenda and use them as guiding principles to prioritize based on the value of each achievement while still considering the overall picture and the circumstance. For instance, it is almost impossible to think about relaxing  security standards in banking, and there are good reasons for that, but what if the environment allows that and the objectives to be met are not related to security matters?

Mahi Sall: What must be thought of and accounted for at this early stage of Open Banking in Canada in order to ensure compatibility and interoperability at regional/international level?

Dr. Francesco Pisani/ Dr. Alexander Christoph: The API should be planned to support multiple currencies and languages. In addition, it should  be able to accept digital certificates from multiple Certificate Authorities.

# # #

Links you may be interested in:

About EY
Dr. Francesco Pisani
Dr. Alexander Christoph

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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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

“The future of Finance is Open.”

-- Francois Lasne, Advisory Board Member of The Berlin Group

Mahi Sall: Who is Francois Lasne?

Francois Lasne: I am an advisory board member of The Berlin Group, the largest Open Banking framework in Europe (NextGenPSD2) implemented by more than 75% of European banks. I am also a member of the French API Thinking Collective where I head the API Governance workstream. Currently working at Ingenico to launch a disruptive Payment Platform as a Service (PpaaS) for instore and online merchants. Prior to that I was director of Open API and Open Banking at Finastra.

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.  

What situations would call for bilateral arrangements in an Open Banking environment that thrives on common rules?

Francois Lasne:  Innovation runs fast, faster than regulation.   Setting up a regulatory framework that rests on a solid foundation helps stimulate the creation of an ecosystem. That allows fintechs to invest as they will be able to connect / address a larger set of actors.

That said, innovation should not be blocked. If a fintech and a bank have a great idea that goes beyond the scope of regulation, why stop it? A new business idea or new use cases should not be stopped because others are not involved.  Fair enough, it gives a competitive advantage, then up to the bank to negotiate if this feature would be exclusive or not, offered for free or not.

It is also important to learn by doing, and once a learning has been ‘validated’, integrate it back into the regulatory framework. Between the UK and the EU there are a lot of differences like Product Information, Branch Locator (mandatory in the UK, not required in France), etc. Shouldn’t a Branch Locator API be allowed in France?

In Europe you have the PSD2 regulatory scope with some value-added services not yet regulated like loan account support. Up to the bank and fintech to propose those services for free or paid. Here the market will make the difference.

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? 

Francois Lasne:  Accreditation provides trust and limits fraud. The counterpart of trust is validation, and the usual pitfall of validation is process and bureaucracy.

In the EU, the European Central Bank (ECB) delegated the accreditation process to National Competent Authorities (NCA) i.e the national Central Banks of member countries. The process is enforced by eIDAS certificates and requires NCAs to have the capability to warn for revocation of certification.

The process flow is summarized below (Saltedge illustration):

• TPP to push ask for an authorization and present legal documents and insurance (especially for payment)
• NCA to issue authorization
• TPP to ask for an eIDAS Certificate to regulated entities QTSP (qualified trust service providers)
• QTSP to validate the authorization and issue dedicated eIDAS certificate
• TPP to send eIDAS certificate to bank
• Bank to validate eIDAS certificate

In this process we can see that several parties are involved, and so it requires a proper alignment of the stars. It is also very important to be able to distribute Test Certificates and define happy flow as well as negative flow (wrong certificate, revocation scenario).

Frustration usually happens due to unavailability of the actors, the test environment, or/and a lack of fluidity of the process.

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?

Francois Lasne:  A single standard looks like a much simpler option. But this standard needs to be smart. Open Banking UK is very smart, with good coverage, good documentation. Having a single standard makes things clearer for TPPs, the road is paved and we have directions. It also simplifies the implementation.

Best is when beyond the standard there is a reference implementation or at least a TCK (Test Compliance Kit) as you have for instance for OpenIdConnect. This guarantees less interpretation.

On the other hand, having a single standard puts a lot of pressure on the regulator to provide good API, good documentation and so on. Open Banking UK quality has a cost.

The EU approach was focused on the legal aspects. This led to multiple standard implementations with a fragmentation of the API framework (STET, Berlin Group , Polish API ) and interpretation of the laws (just looking at the number of questions to the EBA - European Banking Authority).

Canada needs to learn from this. There is no point in creating yet another standard. I would encourage Canada to leverage what exists either FDX, Berlin Group or Australia API. Berlin Group being an open-source standard looks more straightforward, so I would recommend a fork (aka a copy), better a collaboration.

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? 

Francois Lasne:  Master Yoda says: “Do or Do not, there is no try”. Fallback is not a good option, meaning that it is complexifying integration and entering into a gray zone. As a regulator I don’t want to evaluate the quality of fallback options, as it would be a case-by-case study. This will be  breaking the fluidity and adoption of API. You might end up with everyone doing fallback, which in a way would be defeating the purpose of regulation.

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

Francois Lasne:  As we deal with API and testing, both parties i.e. producers (Banks) and consumers (TPPs) need to be ready on time. What we’ve learned is that testing needs to be prepared in advance, especially the security infrastructure like certificates as well as the business domain. There were also huge differences between “Sandbox” and production data. Testing in production with a real production system is always better. What is the point of code against a sandbox replying to a static response? Better having an agreed scenario on dedicated test users and accounts, and then no surprise when doing the production. It is so frustrating to have everything working with a sandbox, only to have to redo all the testing campaigns against the production environment.

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?

Francois Lasne:  Let’s learn to walk before running, so starting with the basics i.e. account information data (all kinds of accounts, no need to restrict) will enable a lot of use cases e.g. cashback , account aggregation, scoring and so on. Then payments, both immediate and cross border targeting for sure reduction of cost. Having basic static data like product information is great as well.

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

Francois Lasne:  One of the biggest misconceptions about Open Banking  is that people believe that their data will be shared and resold as Google is doing whether or not they consent. Open Banking is more about users taking back ownership of their data that banks hold. With Open Banking users are the legitimate owners of their data, and it is only with their consent that it gets shared with providers of their choice.

Also people do not see the benefits of Open Banking because they are used to paying with credit cards. Despite the prefix  ‘open’, Open Banking is actually much more secure than credit cards for making payments online.

Lastly, people fail to see an economic incentive. Here merchants should promote Open Banking by offering discounts, a way of passing on to customers the savings on the fees they’ve made, which otherwise would have been paid to card network providers.

Open Banking enables banks to externalize their innovation labs to fintechs for free, at zero risk!

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

Francois Lasne:  Banks might see Open Banking as a threat, as they need to provide ‘their’ data for free. But what we have seen in the EU is that Open Banking was a fabulous driver for innovation. All banks now in the EU provide  account aggregation as part of their mobile apps. Most of them are pushing new services like cashback based on Open Banking, statement categorization while some are pushing green indicators and so on.

Also a lot of corporate flow goes to API for ERP connection. API has to be seen by banks as a new vector of distribution of their services. It has become the new virtual branch, the same way as mobile.

For TPPs we can see 2 approaches:

1. Those wanting to partner as much as possible and get integrated inside a bank’s mobile app. Those are on the bank side, hence not a threat, rather an opportunity for banks! It is a bit like a way for banks to externalize their innovation labs to fintechs without cost!
2. On the other side are fintechs that are more on the consumer side targeting for instance corporates with ERP integration.

Sitting in the middle are the aggregators. These are playing a very important role because as a TPP I would rather go to an aggregator who has set up all the plumbing instead of trying to connect directly with all banks on my own.

See:  Fintech Reports and Research

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

Francois Lasne:  Banks need to have an API framework in place, run tests and provide support. Launching an API is like launching a new product. We all know that adaptation (so called bug) is required at the beginning, so be ready for some support activity. The same goes with onboarding as the onboarding might not be fully standardized.

TPPs being usually smaller are more agile and able to adapt, they will chase banks. Do not focus on a particular one, instead target multiple Banks as one might get stuck for a while. Starting several threads would be a safe path.

Do not reinvent the wheel, leverage previous experiences.

Mahi Sall:  Given the very tight schedule of Canada’s Open Banking roadmap, where do you think the balance must be struck to meet deadlines without significant trade-offs?

Francois Lasne:  One key big accelerator would be to adopt or partner with an already existing big standard i.e. Berlin Group, OB UK or FDX. This would significantly reduce the design phase, although a bit of adaptation will be required, but the basis and documentation is solid.

Mahi Sall:  What must be thought of and accounted for at this early stage of Open Banking in Canada in order to ensure compatibility and interoperability at regional/international level?

Francois Lasne:  Think big!

Do not focus only on regional payment schemes but make the framework flexible enough so that it can be extended. Then you may provide a discovery mechanism so that by code the TPP can discover whether or not this bank supports this feature.

# # #

Links you may be interested in:

• About The Berlin Group
• About the French API Thinking Collective

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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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

“Banks need to change their mindset and start designing services with an API- FIRST approach. Because of their own complexity and all the regulation they have to cope with, banks are not as fast as the market requires it in an Open Banking environment that strives for speed.”

-- Carmela Gómez Castelao, Head of Global Open Banking Program & José Luis Navarro Llorens, Global Open Banking Strategy, BBVA

Mahi Sall: Please tell us about yourselves and BBVA.

Carmela Gómez Castelao / José Luis Navarro Llorens: We are Carmela Gómez Castelao & José Luis Navarro Llorens, Head of Global Open Banking Program and Global Open Banking strategy at BBVA respectively.

BBVA is a customer-centric global financial services group founded in 1857. With 715€ b in total assets (Q2, 2022), 85m customers and over 100k employees across more than 25 countries, the Group has a strong leadership position in the Spanish market, an important investment, transactional and capital markets banking business in the U.S, and leading franchises in South America (largest FI in Mexico) and Turkey. Awarded  'Western Europe’s Best Digital Bank,’ 'Latin America’s Best Bank for Corporate Responsibility,’ 'Mexico’s Best Bank' and 'Mexico’s Best Investment Bank' by Euromoney 2022, the institution rests on solid values: Customer comes first, we think big and we are one team. Its responsible banking model aspires to achieve a more inclusive and sustainable society.

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.  

What situations would call for bilateral arrangements in an Open Banking environment that thrives on common rules?

Carmela Gómez Castelao / José Luis Navarro Llorens: Bilateral arrangements help to innovate and differentiate the offering from those only abiding by common rules. Common rules are important to get banks and third-party providers (TPPs) engaged with Open Banking and setting the framework for all parties to understand how to participate in the ecosystem. But they don’t favor innovation.

PSD2 in Europe set those common rules, and got banks started with Open Banking. Now most banks are exploring what can be done beyond PSD2 and it’s then when Open Banking is thriving. Regulated Open Banking is restricted to Account Information and Payment Initiation, whereas Open Banking is expanding into loans, insurance, forex, etc. Just by looking at what competitors are doing through bilateral arrangements with TPPs other banks get compelled to innovate and compete.

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? 

Carmela Gómez Castelao / José Luis Navarro Llorens: We think it’s positive to have an Open Banking framework yet we’d prefer that all non-bank TPPs go through a formal authorization process.

• On the positive side, it simplifies the identification and interaction with third parties, ensures minimum levels of technical and operational capabilities of the TPPs and in general clarifies the responsibilities of the ecosystem participants.

This would also reduce the potential data asymmetries between non-bank third parties holding non-financial information that can be combined with the information accessed through the Open Banking Framework.

• On the negative side, asking all TPPs to have a license limits the possibility of bilateral agreements with them for developing innovative and exclusive services.

See:  Go Beyond ROI With Return on Experience in Banking

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?

Carmela Gómez Castelao / José Luis Navarro Llorens: We understand that multiple standards if compatible are not a big issue, but it is preferable to have a single approach for consistency in facing the potential TPPs and for freeing the participants from having to decide the best standard to follow. We recommend using international standards and not developing new ones.

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? 

Carmela Gómez Castelao / José Luis Navarro Llorens: The simplest fallback option we found was to use embedded URLs pointing to customized landing pages, a stepping stone to allow the business in between the APIs to be ready. Not only as a fallback option but also as an anticipated measure until the API is ready, helping the end customer become familiar with the embedded world.

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

Carmela Gómez Castelao / José Luis Navarro Llorens:

1. Test thoroughly all cases and not only the happy path ones. Often in the test periods there are restrictions on customers or allowable transaction amounts that won’t allow all issues to appear until going fully in production.
2. Integration between banks and its partners needs to be technically light and easy enough to be executed without much technical background. Support from the bank is a must to ensure the best user experience when integrating APIs.

Mahi Sall: Financial inclusion is high on Canada’s Open Banking agenda. Please share examples where Open Banking failed to deliver on this metric. What are some of the key lessons learned that Canada could benefit from?

Carmela Gómez Castelao / José Luis Navarro Llorens: Usually, banks starting to offer Open Banking services have invested quite a lot of money to build platforms, reshape their legacy systems, build offerings, etc. and they become burdened by that cost, which results in prioritizing the higher yielding business cases. Although financial inclusion is one of the cases that can be achieved naturally through Open banking their business models are modest and difficult to prioritize over the rest. That can be solved through rewards or advantages given to those banks offering financial inclusion.

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?

Carmela Gómez Castelao / José Luis Navarro Llorens: Consumers are not familiar with Open Banking, yet they are keen to use it once they understand the benefits obtained through it. Low adoption is normal considering the lack of information about how Open Banking works and what if offers. For boosting adoption, it requires capital to promote Open Banking through the first use cases while focusing on customer benefits and the security of the data shared. It is also very important to have enough use cases on the market to meet a surge in demand, and a sustainable and fair business model that makes using the Open Banking framework attractive.

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?

Carmela Gómez Castelao / José Luis Navarro Llorens: Simple use cases that don’t require too complex preparation from banks and fintechs, such as simulators for loans or insurances, enquiry for FX rates, account balances, and transactions. Leaving more complex transactions for later stages.

B2B use cases i.e. provide APIs for corporate clients to perform activities formerly solved by web services e.g. payments, treasury management etc. are faster and simpler to implement than B2B2B or B2B2C ones (aka having a third leg), thus should be prioritized.

See:  Fintech Reports and Research

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

Carmela Gómez Castelao / José Luis Navarro Llorens: Talent is always required. Although the biggest factors for the Open Banking system to succeed are:

• To have buy-in from financial and non financial institutions.
• Create an attractive environment for both providers and receivers of Open Banking.

Mahi Sall: What are some of Open Banking’s major incidents and how to risk manage them?

Carmela Gómez Castelao / José Luis Navarro Llorens: The Major problems of Open Banking are related to controlling Fraud and Risk. We suffered from prescriptor fraud in a case of checkout lending that forced us to cancel the service. Open Banking means a change in paradigm on how to use banking services (as they are provided outside of the banking environment) and inherently comes with risks such as:

• Identification of the customers, which in most cases won´t be bank customers but third party users. PEPs (Politically Exposed Persons), blacklists, and fraud are potential risks as APIs require online checks - Strong Customer Authentication (SCA) required.
• Due Diligence and monitoring process needed to watch and verify that the APIs are being used correctly by the third parties, as the bank has ultimate liability of the offerings.

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

Carmela Gómez Castelao / José Luis Navarro Llorens: Open banking should be fast for connecting and adapting to market trends. But for banks that are highly regulated the process to go live or make changes is still slow and tedious; they can’t keep up with the speed of the market.

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

Carmela Gómez Castelao / José Luis Navarro Llorens: It’s an opportunity for all stakeholders. Open Banking redefines the models of interaction among several players, banks, fintechs and third parties. Thanks to APIs and the services being exposed, banks and fintechs can compete or collaborate in the offering to third parties. We have seen several examples where the bank leverages the technology provided by a fintech company for offering a specific service, instead of building the capacity internally.

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

Carmela Gómez Castelao / José Luis Navarro Llorens: Prepare themselves to work into an ecosystem model i.e. being able to co-create solutions that benefit the end-customers, facilitating the financial transactions embedded into their daily  ‘journeys’. Bear in mind that what customers ultimately want is to achieve a goal, either buying an item, a trip, a car or a house. They don’t look forward to paying or requesting a loan, if not as a means of achieving their personal target. Banks and TPPs need to achieve a seamless integration between financial services and a customer’s journey. It’s only then when embedded finance will be accepted as an added value service for the customers.

Mahi Sall:  Given the very tight schedule of Canada’s Open Banking roadmap, where do you think the balance must be struck to meet deadlines without significant trade-offs? 

Carmela Gómez Castelao / José Luis Navarro Llorens: As stated previously, start by completing simple use cases first and create the habit of Open Banking in society before looking for higher achievements.

Mahi Sall: What must be thought of and accounted for at this early stage of Open Banking in Canada in order to ensure compatibility and interoperability at regional/international level?

Carmela Gómez Castelao / José Luis Navarro Llorens: In our experience the issue with international standards is that other countries may have a different approach to the treatment of Open Banking (how to treat TPPs, etc.). For us, a service agreement with a company in Spain may not extend directly to Mexico because they have stricter regulations and a narrower concept of TPPs (requiring them to be regulated as financial agents). Open Banking itself is technically compatible but may not be compatible from a regulatory perspective.

Mahi Sall: Any final thoughts?

Carmela Gómez Castelao / José Luis Navarro Llorens:  How about monetization of APIs?

“Monetization of APIs is required to encourage banks and TPPs to invest in Open Banking. Regulated APIs don’t help differentiation and are difficult to monetize.”

Monetization is key for banks to invest in Open Banking. Banks cannot monetize regulatory APIs easily. However banks can monetize non-regulatory APIs (although not always directly) depending on the third party and the agreement.  Monetization can be direct revenue (pay per call, fees per subscription or platform use, and integration fees) or indirect revenue (data acquisition, cross-sell, marketing or underlying service from the bank). In some cases and for large customer bases, the third party monetizes the use of APIs through models such as fee per customer acquired by the bank or revenue sharing.

# # #

Links you may be interested in:

• About BBVA

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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