This is quite a personal article for Mr. Open Banking because Canada just happens to be where I call home.
In fact, I spent most of my professional career with a major Canadian bank, as part of their Enterprise Architecture team. It was during my time there that I first discovered open banking and it was love at first sight.
Almost immediately, I tried to champion open banking internally, hoping to convince the bank to see open banking not as a threat, but as an enormous opportunity to lead as innovators and grow their business.
Mr. Open Banking interview with Senator Colin Deacon
This article explores the Canadian experience with open banking, a country where six dominant banks form the center of the economy — the same kind of market concentration that today exists in many countries.
Understanding the Canadian landscape
To help us understand the current Canadian landscape, we spoke with Senator Colin Deacon of Nova Scotia. Before joining the Senate, Deacon ran several successful global businesses, the latest of which was Blue Light Analytics, a technology firm providing data tools to dental offices worldwide. Deacon was appointed to the Senate on June 15, 2018, where he has since made strides in changing Canada’s technology ecosystem to advance innovation and — of course — open banking.
Some of those six big banks I mentioned — known as the Big 6 — didn’t exactly welcome open banking with open arms. They weren’t happy with the idea that Fintech firms would automatically have access to their customers’ data, even if that’s what the customers wanted. Senator Deacon explains:
“This is the traditional moat way of looking at your business. I think banking around the world has been a system where you’ve got wider, and deeper moats being encouraged by banks and regulators.”
Today, even in the absence of open banking, over four million Canadians have signed up for alternative financial technology services. If so, many Canadians are moving to these financial tools, Senator Deacon argues that there are services the big banks aren’t offering.
Typical of this kind of banking environment, the Big 6 control an outsized amount of the banking market, between 80% and 90%. By some measures, even more. Some claim this market concentration is a benefit, aiding stability, but its existence cannot be denied.
At this point, what some banks would bring up is what has come to be known as “the asymmetry problem,” or the “reciprocity problem.” They would say, “If I have to give up all of my data, don’t Facebook and Google have to give up their data?”
For Senator Deacon, this question is flawed within the first eight words. The data is, in fact, not theirs. It belongs to the individual who produced the data. Therefore, it’s the individual who should have the ability to decide and consent to how that data stream is used.
“There are data streams about us coming from all of our devices – minute by minute, hour by hour, day by day. What I want to do is have very clear guardrails up, as we have on highways, to protect us from making bad choices.”
Despite the potential for implementing guardrails, the sad fact is that Canada has fallen behind in open banking.
We started off on the right foot. A consultation paper published in January 2019, called “A Review into the Merits of Open Banking,” was very well-received, prompting hundreds of public responses from businesses and individuals alike. This was still late relative to places like the UK or Australia, but at least it was a start.
Since then, little has happened. To be sure, various meetings and discussions have been held by the key stakeholders from the banks and the governments, often aided by large consulting firms.
The most significant result was the publication of a report back in January 2020, entitled “Consumer-Directed Finance: The Future of Financial Services.” Despite a questionable call to change the name “open banking,” the report took a surprisingly forward-thinking view and made some excellent recommendations.
A quote from the paper puts it best:
“There is no going back. A significant amount of data sharing is already undertaken in the market through inefficient technological workarounds that present liability and security risks for all.”
During the COVID-19 pandemic, Deacon and his colleague Howard Weston have been advocating for Fintech firms to help with distributing funds to individuals and small businesses. Many Fintechs are unable to supply COVID relief funds to small businesses because Finance Canada has chosen not to work with them during this time. These Fintechs are losing valuable relationships with their customers because of it. Senator Deacon continues:
“The world has shifted, and unfortunately, Canada is not shifting yet. We’re losing Fintechs to the US because of our regulatory environment. We can’t afford that in Canadian right now.”
A common defense of the Canadian banking ecosystem is stability. Some would say that stability comes from a certain conservatism or risk aversion. Since open banking is an innovation ecosystem with a great deal of risk, it seemingly threatens that stability.
According to Senator Deacon, their worry is misplaced. The real risk comes from offering services that aren’t in line with the global competition. Still, Deacon stresses that it is important to be careful in their approach to open banking. In the end, he believes firmly that the vast majority of Fintech players in this country want well-written regulations and a carefully controlled environment that they can freely compete in.
The best part is, we already have most of the pieces. On the digital ID front, we have existing agencies like DIACC, legislation like PEPIDA, and actual working technology in the form of SecureKey acting as a foundation for consent. For payments, we already have Payments Canada and bank-owned Interac working together on a modernization program.
All we are missing is a common set of functional APIs for the standardized and secure sharing of Canadians’ financial data.
The open banking initiative Senator Deacon admires most is Australia’s Consumer Data Rights Act. He feels this regulation is shifting the way businesses look at consumer data – as something that can be invested, like money.
The possibilities for individuals who own their data are endless. However, most Canadians have no idea how much organizations know about them, especially in the financial sector. Banks can monitor debt levels, real estate assets, equity positions, and every transaction a consumer makes.
“The fact is, Canadians need to know an awful lot more about what organizations know about them. It’s not just about banking, it’s about the control individuals have over their data.”
To create an effective open banking framework to enhance data ownership in Canada, Senator Deacon says it’s as simple as the Minister of Finance finally prioritizing it. But as the country moves into COVID recovery, the legislative agenda is at a standstill. Once parliament starts working again, Deacon and his colleagues can start pushing for open banking and data rights to become common policy in Canada.
As a proud Canadian, Deacon is ultimately confident in Canada’s ability to become a world leader in competitive, open, and customer-centric banking.
“I believe Canadians have a great value system and that we’re trusted for that around the world. Let’s use that reputation to build businesses that deliver even more value globally. Let’s make sure to become the number-one country in the world in terms of exporting our ideas.”
Ultimately, the Canadian banks, and other banks in similar markets, must face a challenge. A challenge to look beyond convention. A challenge to envision a financial services ecosystem so fluid and flexible that money, accounts, and financial data flow freely — from one bank to another – all over the world, instantaneously.
Meet the challenge
To meet this challenge, they will have to first shun their oligopoly histories and tired business models and think of entirely new ways to engage with their customers.
To get there, they must reach out to organizations in their region that support open banking and get behind them. In Canada, this includes groups like the CIO Strategy Council, the Digital Identity Lab, and the Open Banking Initiative Canada, or OBIC. If you already partner with Fintechs, as many large banks do, ask yourself honest questions about how that’s going, and think about how much easier it would be if there was a standard way to do it.
What would you do if you could integrate with many Fintechs instead of just one or two? What if those Fintechs were not just in your home market, but global? What would your products look like if you could seamlessly stitch them together with products from others? What kind of advice could you offer to your clients if you could really see everything about them, all their data, from everywhere? Would your bank still make money the same way? Or would you find yourself in a completely different business?
For traditional banks, answering these questions is the challenge. Those who answer well, who rise to the challenge, will build the future, and those who answer poorly will not survive.
To succeed, you will have to reimagine your bank. As a builder, as a trusted advisor, as a true innovator, as a player on the global stage of open banking.
To find out more about Senator Deacon’s work and his efforts to promote open banking, visit his website at www.colindeacon.ca.
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