Canada's competition watchdog is urging Ottawa to adopt an open banking framework that helps lower switching costs and boosts competition in the sector.Adrien Veczan/The Canadian Press
Will Christodoulou is co-founder and CTO of Cyder, a Toronto-based fintech startup that helps financial institutions ethically source real-time data.
René-Sylvain Bédard is the founder of Indominus, a Quebec-based cybersecurity firm.
Both are alumni of Rogers Cybersecure Catalyst’s Cyber Accelerator program at Toronto Metropolitan University.
The open banking system, which has been gaining traction around the world, enables consumers to share their financial information securely with banks and other financial institutions. Introducing an open-banking framework will give Canadians greater control over their financial data. For the economy, it will boost growth and innovation, bringing new competition to the financial sector.
So what’s the holdup?
Let’s look back at how things have been done for the past 50 years. It will give us a glimpse into why things are not moving as fast as they should.
Historically, banks have exchanged data daily. What used to be a private network known as the Canadian Payment Association evolved into Interac. It still serves the same purpose: to exchange data between banks. The speed of exchange might have accelerated over the years, but the process remains the same. For those seeking change, this was like running on a treadmill: you’re burning calories but aren’t getting anywhere.
During René-Sylvain’s time in the Canadian financial sector, he found that enacting change was difficult even with the biggest team and R&D budget. The systems in place are meant to stay in place. It was a culture focused on sticking to what’s familiar.
For years, the Canadian government has snubbed innovation and competition to protect their regulated industries. It’s almost guaranteed that if a change is required in banking, insurance or telecommunications, our members of Parliament will always provide them with accommodations to make the transition slowly.
The latest of these preferential treatments has been in the Canadian banking industry. It has been six years since the federal government introduced the idea of having an open banking system in Canada. The lack of decisive action from Ottawa on open banking reflects a broader trend of favouring incumbents over innovation.
This shortsightedness stifles competition and hinders our ability to attract investment and talent in the fintech sector. It’s a missed opportunity to lead and shape the future of finance, especially when Canadians face enormous economic challenges. Inflation is high, and the cost of living is rising. An open banking system allows Canadians to take advantage of diverse financial services that better meet their needs.
What is open banking? Federal budget outlines new framework towards legislation in Canada
Britain, Australia and several other European countries have embraced open banking. These regions have seen a surge in fintech innovation, improved customer experiences and competition, ultimately benefiting consumers and driving economic growth.
Contrast this with a Canadian government, characterized by a reluctance to disrupt the status quo. Our policy makers seem more concerned with protecting established players than fostering a dynamic and competitive financial ecosystem.
While pointing out this shortcoming, it wouldn’t be fair if we didn’t mention that the Canadian banking system’s tight legislation saved us from experiencing the worst parts of the 2008 recession. The policies Paul Martin established during his tenure as finance minister ensured that our mortgage market remained stable, dramatically reducing the impact of the subprime crisis.
Apprehension about major legislative changes to our financial sector is understandable, but we can’t let the fear of the past dictate our future. It’s certainly possible those fears are slowing down fintech adoption, but there has been some effort toward implementing an open banking system.
The problem is achieving a tangible process has been painfully slow. The 2024 budget provided no official launch date and only allocated $5.1-million to the development and oversight of an open banking system. In this country, that’s virtually nothing. Australia provided almost 15 times the funding and took only two years to launch open banking.
In an era when convenience has become a greater priority, people are naturally more inclined to switch to a fintech company that provides faster and more personalized services.
Open banking could shake up the monopoly banks hold over the Canadian financial landscape. It could also help them innovate in ways that strengthen their position, especially if they partner with fintechs.
Take Wealthsimple, for example. This fintech amassed more than three million users by making investing simpler – a move which has pressured banks to follow. Open banking would diversify Canada’s financial landscape and further pressure banks to evolve. Maintaining the status quo benefits nobody.
The fintech community has been angry with the Canadian government for being so stagnant in innovation. We should have our own thriving fintech ecosystem that doesn’t require promising startups to move to the United States. We hope the funding provided by the 2024 budget will bring change. Only time will tell.
With open banking, Canada can unlock a wave of innovation, empower Canadians to have more control over their financial affairs and strengthen our financial sector in the global economy. We need a clear timeline, a developed and sustainable framework and more avenues for collaboration between traditional banks and fintech startups.
The longer we delay, the further we fall behind. Open banking should have happened yesterday – let’s not wait any longer to embrace the future of finance.