David Durand, Advisor, Innovation and Advocacy
September 9th, 2020
David Durand, LL.L., B.Sc. chem., – Founder and Managing Partner of Durand Lawyers – Lawyer (Québec)[...]
Why Open Banking Represents a Seismic Shift for Fintech
Wharton | University of Pennsylvania | Jan 16, 2019
Open banking, a collaborative model in which banking data is shared with third-party players, is expected to revolutionize the financial services ecosystem. For consumers, the opening up of banking data could mean better control over their finances. At the same time, the trend has also raised concerns over data privacy and security.
In a conversation with Knowledge@Wharton, Jane Barratt, chief advocacy officer at MX, a Utah-based company that provides data to financial institutions and fintechs, talks about how open banking will impact legacy institutions as well as nimble startups.
Knowledge@Wharton: What is open banking? What are some of the factors that have led to the opening up of banking data to make it shareable via secure APIs [application programming interface] with third parties?
Jane Barratt: Over the past decade or so, we have seen open government and other open initiatives. There’s an expectation now of increased transparency. The idea of people sharing their data — their financial data — is not a new one. It’s happening, and it’s happening with methods that aren’t necessarily private or secure or transparent. People don’t really know where their data is going. Open banking is basically accessing the APIs that the financial institutions use to get greater transparency into your own data, and then being able to share that, with your consent and permission of course, with third parties of your choice.
See: MoF Consultation (Deadline Feb 11): Department of Finance Canada Launches Consultations on Open Banking
Knowledge@Wharton: Could you give some examples of how this is happening, both in the U.S. and in other parts of the world?
Barratt: The U.S. is in the early stages of having an ecosystem built around open banking. Europe has had PSD2 [the revised Payment Services Directive]. You’ve got open banking in the U.K. European banks have a head start on the U.S. in terms of getting the frameworks and the technology in place.
There have been some gaps in terms of understanding by the general public about what open banking actually is. If there is a use case for sharing your data, most people understand. “I can use it to share data with my accountant or a budgeting app.” Or, “I don’t have to manually share my data through a statement or [by] writing it down for them.” But the ecosystem around it is still coalescing.
When you look at Europe or Australia, for example, or potentially Canada and Mexico, these are countries that are leading with regulators. Regulators and governments have come together, and they have a strong seat at the table. Australia has a singular consumer data right — not rights. It’s just the data right, which is that it’s yours. They’re starting with open banking as the first vertical, and then moving into energy and telecommunications. You can see your usage and pricing and competitive offers.
“There’s a lot of talk of the customers being at the center of everything we do, but organization charts do not reflect that.”
And you can see information that often used to be behind the scenes within institutions. The U.S. is much more of an industry-led solution versus a government-led solution. It is by far the most complex banking model in the world. There is a lot of momentum, but it’s still relatively early days.
Knowledge@Wharton: What changes do you think open APIs will bring to banks’ organizational structures and also their competitive positions in the market?
Barratt: From the early days of digital, I used to joke, “Show me a website, and I can draw you your org chart,” because it was always laid out by division and byproduct. There’s a lot of talk of the customers being at the center of everything we do, but organization charts do not reflect that. You now have companies investing heavily in, say, data lakes. These tell us where our customers are and what they do. I think that will start to coalesce around organizational changes.
For instance, who is driving the structure of this? Who is extracting the intelligence from it? How is it being put to work? That’s a more sensible organizational approach than every division having their own databases and CRM and all of the different product databases. It has gotten very messy over the years. Hopefully, true data centricity will come about through how data is collected and what tools are layered on top of it, and all this will help the end customer.
See: Fintech firms want to shake up banking, and that worries the Fed
We have some data on return on investment from both the institutional perspective and the individual perspective. We have seen that when someone can access their data and is given access to tools, their financial strength improves. Institutions spend a lot of money acquiring customers and cross-selling to customers. Instead of this, institutions could focus on reducing high-interest debt, increasing deposits and moving customers up the value chain to higher value products.
There is now so much more competition [to be the] customer’s primary financial institution — even Amazon could be a peer at some point soon. If financial institutions can organize themselves around customer outcomes, they will be able to retain that primary financial institution status. But if they continue to just cross-sell a bunch of products, then it’s going to be [downhill] for them.
Knowledge@Wharton: Will a platform strategy be profitable for incumbent banks that own most of the deposit and lending market share?
Barratt: Banks are already platforms, especially institutions that have multiple product lines around insurance and deposits and lending. They just haven’t acknowledged it yet. It’s not that big of a stretch to put a level of intelligence on top of it with which people can engage. At present, the language is still around segments. For instance, if you’re newly married, you’re put in that segment. But your financial profile may be the same as a boomer because you’ve inherited money or you’ve got good financial habits and you’ve got good savings. And then you have boomers who have the same profiles as millennials.
It’s only when you get to a platform level that you can extract the intelligence around who a person is based on their true profile. Who I am with my credit card company is different from who I am with my insurance company, or who I am with my primary institution. No one has given me a really great reason to connect all of them. And that is the platform that an institution could be, because they have the biggest advantage out of anyone in the ecosystem, which is trust.
I’ve trusted you all this time with my money. I could trust you with my data. There is a great quote from Walter Wriston, who was the CEO and chairman of Citicorp in the 1970s. He said, “Information about money is as valuable as the money itself.” An institution could be a major value-add player in the data-as-currency space. No one’s talking about this as yet. It could be a seismic shift in the industry.
Knowledge@Wharton: How should challenger banks position themselves in this environment?
Barratt: Challenger banks have done a great job in different countries, to varying degrees. They have done a good job of being more digitally savvy. That has been their value proposition. “I’m going to give you a better app. I’m going to give you a better experience. I’m going to give you better transparency.”
See: Passion For Banking Innovation Fueled By Fintech, Big Tech Disruptors
They haven’t necessarily invested in their brands or in the trust. As your financial life becomes more complex, are you going to trust your deposit account with your mortgage or insurance provider? It’s still early days to be able to point to a challenger, but I think there are some examples of players who have done an amazing job, like Aspiration out of Los Angeles, which is a values-led bank.
“The newer players are telling compelling stories and offering compelling digital experiences.”
Knowledge@Wharton: What are some of the key lessons that the bigger institutions could learn from them?
Barratt: It’s about being able to tell a stronger story. There is a genuine human need to understand the story behind companies with which you do business. The newer players are telling compelling stories and offering compelling digital experiences. Of course, bigger institutions can do it. They can micro-target it down to the individual if they wanted to and tell a story that’s great for me. It’s just that organizationally they’re not set up for it at this point in time.
Knowledge@Wharton: Is the introduction of APIs going to bring improvements in banking services? If so, what might be some examples?
Barratt: Definitely. We are seeing giant institutions engaging in a deep way with the ecosystem from a contractual perspective. The data aggregators, who have traditionally been the middle men between the fintechs and the APIs, are doing a lot more direct connection. People no longer have to share their credentials. Out into the ecosystem, you can now have much more secure, token-led engagements.
What some of the institutions are doing is that they are opening up their internal APIs. It’s not heavy lifting for them. You can’t see everything. But they’re getting out there quickly, and they are then seeing how the data moves.
For them, it’s less around, “Let’s make this a uni-directional flow of data.” It’s very much the expectation that it’s bi-directional. And if I can get the incentive to connect my investments, insurance, etc. back to my primary institution, they’re in a much better place to be able to service me.
See: RBC first Canadian bank to open an API developer portal
Knowledge@Wharton: What do you think are the biggest challenges of open banking for both banks and for their customers?
Barratt: With increased transparency, there is definitely increased risk. There is an expectation that the industry should be able to solve these challenges and risks — because that’s what we’ve been doing. But there is a nefarious element to the financial services industry, and so [the question is] with more open data, is there more chance for more scammers, for example? The answer generally — and in theory — should be no, because the personally identifiable information (PII) is taken out. All I’ve done is to allow someone to have a look at my transactions. That’s not going to track back to me. So, the risk element from privacy and transparency should be reduced. However, there are some very creative scammers out there.
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Read More
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Read More
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Read More
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Read More
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Read More
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Read More
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Read More
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Read More
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Read More
Read More
Hardbacon | Julien Brault | Jan 15, 2021 In my time as a business reporter, I was at the forefront during the decline of the country's 2000s tech giant, BlackBerry. BlackBerry launched its mobile app store in 2009, a year after Apple launched the App Store. Everyone knows the rest of the story. See: NCFA OpEd: Canada’s Open Banking Consultations: Let’s Get it Done! While BlackBerry executives praised themselves for having better sound quality and a more efficient keyboard, what people wanted when they bought a smartphone were apps. Today, the Canadian banks are making the same mistake by refusing to put control of financial data back into the hands of their users, as the European banks are already doing. In fact, since September 14, 2019, European open banking regulations (PSD2) force banks to allow their customers to share their data with third parties according to a standardized protocol. In other words, their customers can choose to share their bank information with an online loan app or even with a budgeting app. In Canada, the federal government created the Advisory Committee on Open Banking in 2018, which delivered its first report in 2020, which was very favorable to open banking ...
Read More
Read More
Fintech Confidential | Michael King and Richard Nesbitt | Jan 21, 2021 In our recently published book The Technological Revolution in Financial Services: How Banks, Fintechs, and Customers Win Together, a group of expert contributors from North America and Europe share their insights on how the financial services industry will evolve in the coming decade. The context is the ongoing transformation in the financial services industry, which is being driven by three structural forces: heightened regulation that followed the 2008-2009 Global Financial Crisis (GFC), innovation fueled by new technologies and entrepreneurial fintech startups, and demographic trends with the rise of millennials and the retirement of baby boomers. These forces are changing the competitive landscape of financial services, lowering barriers to entry and increasing competition from both inside and outside the industry. Our book outlines what we see as the successful strategies for financial technology (fintech) companies and incumbents, namely banks, insurance companies, and asset managers. While there is much to learn from our contributors, this article shares our main conclusion and a few key takeaways. We argue that the winning strategy for the coming decade will be for banks, insurance companies and asset managers to partner with fintech startups to ...
Read More
Read More
NCFA | Jan 21, 2021 The OSC has recently announced a Charter for a new Office of Economic Growth & Innovation (Innovation Office): release and innovation office charter. The NCFA welcomes the announcement but remains skeptical. Is this really a "new model" or merely window dressing 1. An Innovation Office alone will not make the OSC more "innovative". Innovation requires a lot more than a mere reference to these words. The Charter points towards "fostering a culture that encourages experimentation, embraces failures as necessary learning steps and allows for a quick pivot to the next idea" and playing a role in the "OSC’s ongoing modernization, which includes adopting a more flexible regulatory approach, making investments in technology and simplifying our rules and processes". Do the OSC leaders (and the Ontario Government) understand how difficult this essential culture change will be? What does "modernize how we formulate policy and new regulations" mean? Does it involve, for example, more disciplined decision making, better analysis and use of data (including collecting or enabling much better capital markets data generally in Canada), extensive staff training, learning to better manage risk? We need more information so that industry participants can have greater comfort about what ...
Read More
Read More
Guest Post | Jan 20, 2021 If you’re new to the world of investing in cryptocurrencies, you might have heard of stablecoins. These are physically-backed assets that differ quite a bit from Bitcoin and other coins. If you’ve heard of them, you’re understandably curious as to what they’re about. This guide can help you with that. How are Stablecoins Different from Bitcoin? As mentioned, stablecoins are tied to a physical asset. Bitcoin is not. It has its own value backed by the electricity that goes into mining it. Stablecoins like Tether or TrueUSD are tied to the value of the US dollar. These are sold on most traditional exchanges. Otherwise, there are also precious metal-backed stablecoins. Coins like these are more often sold on dedicated platforms like Gold Exchange. Now, you can probably infer that because stablecoins are tied to the value of physical assets, their value is inherently less volatile than Bitcoin. As you may know, Bitcoin can (and has) risen or fallen thousands of dollars at any given moment. That volatility might be a boon for some experienced investors, but newer ones might want to avoid them. This is where stablecoins come into play. Stablecoins like SilverCoin allow ...
Read More
Read More
Bain and Company | By Mike Kühnel, Thomas Olsen, John Fildes and Karl Gridl | Dec 16, 2020 Despite decades of technological advances, global capital markets remain characterized by fragmented and siloed networks, with limited interoperability between them. Reconciliation between systems requires extra, sometimes manual, steps. Many processes across the financial ecosystem thus continue to be prone to error and high costs. This applies to public markets but even more acutely to private markets. See: 3 Ways Digital Assets Will Reshape The World As a consequence, a consensus across the global financial ecosystem has emerged: Digitized financial assets and distributed ledger technology (DLT) platforms will substantially improve transparency of information, automation, distribution and, ultimately, liquidity. Adoption of digital assets—assets and regulated financial securities that are represented digitally and administered on digital platforms—will expand beyond the first niche application of cryptocurrencies, with DLT removing many sources of inefficiency. Exchanges, banks, technology companies and other financial market firms will need to make decisions soon about how to participate, as it takes time to build an economically attractive business model and the required capabilities and partnerships. Postponing this decision comes with the risk of losing strategic position as early movers gain share and ...
Read More
Read More
Crowdfund Insider | Steven Knipfelberg | Jan 19, 2021 Why are smart contracts significant? Traditionally, parties have relied on intermediaries, such as escrow agents, banks, or governments, to ensure the performance of a contract (or that a party didn’t simply run off with your cash). Smart contracts eliminate the role of intermediaries because they are both self-executing and self-enforcing. The entire transaction is dictated by computer code alone. By cutting out the “middleman,” transaction fees are dramatically reduced, while transaction speed is dramatically increased. Parties can now make a wide variety of agreements without fear that the agreement will be dishonored. See: The UK Provides Legal Certainty For Smart Contracts And Cryptoassets In Its Landmark Legal Statement Blockchain-based smart contracts are quickly becoming a common method of transacting. Since 2018, private parties have increasingly used smart contracts to tokenize assets and execute the terms of commercial loans and securities lending transactions, such as “repo” swaps of U.S. Treasury bonds. In the near future, smart contracts may be used in an even greater variety of transactions involving international trade finance, derivatives markets, mortgages, and auto leasing. With their ability to instantaneously execute and settle transactions, smart contracts have the potential to ...
Read More
Read More
KABN | Cara Buckspan | Jan 19, 2021 Access to up to 2,000 US Colleges and Universities with reach of up to 1.5 Million Students TORONTO, ON / ACCESSWIRE / January 19, 2021 / KABN Systems NA Holdings Corp. (CSE:KABN)(OTC PINK:TRWRF)(FRA:4T51) (the "Company", "KABN North America" or "KABN NA"), a North American Fintech solutions company specializing in empowering individuals to manage, control and generate value from their biometrically-verified Self Sovereign Identity ("SSI") through its Liquid Avatar platform, announces today that it has entered into an agreement to partner with US based, The Campus Agency to create innovative engagement programs for Liquid Avatar to reach the US college and university student, alumni and family market. KABN NA and The Campus Agency will be working together to engage micro-influencers, develop and launch innovative engagement and Augmented Reality programs to introduce the college and university market to the Liquid Avatar and KABN value programs. The partnership goals are to increase brand awareness, maximize engagement, educate users on the value proposition of Self Sovereign Identity, and generate user benefits and revenue for the partnership program. See: Law reform to move identity verification online Digital IDs Help Open Banking Reach Its Fullest Potential With reach ...
Read More
Read More
FinCEN | Release | Jan 14, 2021 WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) announced today it is reopening the comment period for its recent proposed rulemaking regarding certain transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (LTDA). Under the Notice of Proposed Rulemaking (NPRM), banks and money services businesses (MSBs) would be required to submit reports, keep records, and verify the identity of customers in relation to transactions above certain thresholds involving CVC/LTDA wallets not hosted by a financial institution (also known as “unhosted wallets”) or CVC/LTDA wallets hosted by a financial institution in certain jurisdictions identified by FinCEN. See: Hester Peirce Says SEC Enforcement is Not the Way to Provide Crypto Clarity Today’s Notice identifies additional statutory authority for the proposed rule under the Anti-Money Laundering Act of 2020, provides additional information regarding the reporting form, and reopens the comment period for the proposal. Specifically, FinCEN is providing an additional 15 days for comments on the proposed reporting requirements regarding information on CVC or LTDA transactions greater than $10,000, or aggregating to greater than $10,000, that involve unhosted wallets or wallets hosted in jurisdictions identified by FinCEN. FinCEN is providing an additional 45 days ...
Read More
Read More
Financial Times | OpEd by Brian Brooks | Jan 12, 2021 Lenders run by algorithms and blockchain technology will require 21st century regulation The writer is the US acting comptroller of the currency In 1961, Popular Science magazine envisioned self-driving cars. The reality arrived sooner than anyone anticipated, and before safety regulators could adapt. Most automotive laws — on speed limits, giving signals, drink-driving — had been designed to protect against dangerous drivers, not dangerous cars. Autonomous vehicles brought new risks that legacy rules never considered. As one headline on the Wired website put it: “Who’s Regulating Self-Driving Cars? Often, No One”. Banking is headed down the same road. And it’s being driven by the technology behind decentralised finance, or DeFi. But just as the original rules of the road protected us from other drivers, so our current bank regulations exist mainly to prevent human failings. See: Intro to yield farming and the latest developments in DeFi At the US Office of the Comptroller of the Currency, we require every bank to have officers responsible for its safety — such as a chief risk officer and a chief audit executive. We limit how much banks can lend to their directors ...
Read More
Read More
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