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Open banking in Canada – time to prepare for change

The Sixty Percent | Dan Smith, Editor | July 30, 2019

Open Banking a reality - Open banking in Canada – time to prepare for changeAs legislators tentatively prepare to adopt open banking, what are the opportunities and who are the beneficiaries of a new financial rulebook?

Open banking is on its way to Canada, representing a major opportunity for the region’s fintechs. In September 2018, the Department of Finance created a committee to advise on the pros and cons of opening up consumer financial services. Its report was published in January and, despite raising concerns around the privacy of consumers’ data, is largely receptive to the concept.

At iwoca, where we provide fast, flexible business loans for SMEs, open banking has been an important part of our growth. Canada’s fintechs should prepare for the opportunity.


So, what is open banking?

In Europe, the open banking regulation PSD2 (Revised Payment Service Directive) came into effect in 2015. This set of rules was designed to break the hegemony of the established European banks and welcome innovative new players to the industry, while making electronic payments safer and more secure.

Under this framework, in 2016 the UK forced its biggest banks (Allied Irish Bank, Bank of Ireland, Barclays, Danske Bank, HSBC, Lloyds, Nationwide, RBS and Santander) to allow fintech startups access to their customers’ data, when requested by the consumer.


What does this mean on the ground?

At iwoca open banking allows us to make better credit decisions for the benefit of our customers. We can now access several years of an applicant’s financial statements direct from their bank, and as a result make highly accurate credit decisions.

Elsewhere in the UK, newcomer banks, such as Monzo and Starling are thriving by offering slick apps that help people manage their money more easily. Financial planning platform Finimize is providing millenials with a low-cost alternative to a financial advisor. Investment platform Nutmeg is democratising wealth management, helping people invest with as little as £100.

For Canadian firms looking to benefit from any forthcoming rule changes, there are plenty of areas to explore. With greater access to transaction and statement data, fintechs have more information about their customers. This will make easier for them to offer tailored products for individual customers, manage risk with greater accuracy, identify customers to onboard, offer money management solutions, and collaborate with other players in the industry.


A word of warning

But that’s not to say the introduction of open banking will result in success for all of the industry’s players. Much of the opportunities available to tech firms are also available to incumbent banks, which are well respected by the Canadian public. The established giants have the advantage of strong brands and significant resources to throw at developing new tools and services. Taking them on won’t be easy.

See:  Open Banking: What’s Really at Stake

In addition, any legislation would likely involve the loosening of red tape in some areas and tightening in others. Fintechs must therefore innovate with care. People’s money and financial data is a sensitive area, so accounting errors, data breaches and other lapses of trust can have a major impact on a fledgling company’s reputation.

Consumers will not stand by firms who are seen as irresponsible with their financial records.


What’s the score elsewhere? 

Open banking is being roll-out around the world, with several other markets poised to implement it in some form. Hong Kong, Japan, Israel, Australia, Mexico and New Zealand are all researching the area, conducting pilot schemes and drafting potential rules to implement in coming years.

It’s an exciting time to be in financial technology, with amazing opportunities to innovate and build new products. At iwoca we aim to keep our customers at the centre of everything we do. Afterall, success in the open banking landscape depends on providing a valuable, high quality service – it’s what the initiative was designed to do.

Read more from iwoca at The Sixty Percent

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