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Big changes are coming to how Canadians bank, but adoption likely to be slow



A long-anticipated shift in the Canadian banking landscape is on the horizon, bringing about significant changes that promise to give consumers and businesses greater control over their financial data. This transformation, known as open banking, is set to be facilitated by upcoming framework legislation promised by the federal government in the next month's budget.


Open banking is a global phenomenon that aims to empower individuals by allowing them to share their banking data with other companies. The primary application involves integrating banking information into budgeting or money management apps, consolidating various accounts and credit cards into a single platform. This innovative approach extends to simplified payments, automated accounting, and enhanced business finance management.


A key aspect of open banking is its potential to revolutionize credit assessments. By granting lenders direct access to an individual's banking data, this model transcends traditional credit scores. Additionally, consumers can utilize open banking to build their credit history, demonstrating financial responsibility through reliable rent payments.


Helen Child, the founder of Open Banking Excellence, emphasizes the broader societal impact of open banking, describing it as a catalyst for a fairer, more inclusive, and open society. The model, often referred to by the government as consumer-driven banking, aligns with a global trend of giving people more control over the data collected about them.


Despite its potential to reshape the financial landscape, there are skeptics who question the speed and extent of change. Abhishek Sinha from EY Canada acknowledges the necessity of building trust among Canadians, considering it a significant challenge for the fintech community.


Comparisons with the European experience reveal that open banking had a relatively low uptake after its launch in 2019. Even in the UK, where it originated in 2018, only 11% of consumers were using open banking as of last June, according to Open Banking Ltd. In Canada, with its concentrated banking sector and conservative financial culture, the adoption of open banking is expected to be a gradual process.


Marc-André Pigeon, an assistant professor at the Johnson Shoyama Graduate School of Public Policy, highlights the influential role of established banks, making it challenging for new players to enter the market. The government's emphasis on security benefits over competition, coupled with a cautious approach requiring startup accreditation, indicates a deliberate go-slow strategy.


Elizabeth Sale, a financial services lawyer, expresses uncertainty about the extent of change that open banking will bring, especially given the lack of public understanding about its intricacies. Proponents, however, stress the importance of time and education, emphasizing the need for Canadians to grasp the benefits rather than the technical details.


Nicholas Schiavo from the Council of Canadian Innovators acknowledges the need for an educational component, asserting that Canadians don't necessarily need to understand the system intricacies but should recognize its advantages. The current lack of competition in banking, resulting in high fees estimated at over $7.7 billion annually, further underscores the potential benefits of open banking.


While challenges and skepticism persist, global momentum for open banking is undeniable, with notable progress in countries like the UK, Australia, India, and Singapore. As the system gains traction, particularly with new entrants offering innovative solutions, convenience and simplicity are expected to drive its acceptance, even among those who may not fully comprehend its inner workings.


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