Steven Fell likes tracking his finances more than most people. He keeps all his expenses in a document to monitor how much he spends, and that gives him a better idea of what his expenses will look like in retirement.
To do that, he uses an app that collates all his banking data across multiple accounts and credit cards, and lists all of it in a way that allows him to transport it easily to a spreadsheet. Mr. Fell is only able to do it because he’s in Britain, where a system called open banking exists.
It may sound simple, but that process isn’t possible in the same way in Canada, and there’s some question whether this country will ever have open banking at all – especially with Canada’s track record on implementing existing technology, such as real-time payments.
The premise behind open banking is straightforward: It compels banks to share your financial data with other institutions and fintech companies at your request. The regulatory framework that allows data to be shared securely between approved financial institutions and tech companies is already in place in Britain, Australia and Brazil, and it is being developed in the United Arab Emirates and the United States.
In Canada, the only way consumers can do the same things as Mr. Fell is by using outdated technology: You give an app permission to log into your bank account and scrape the text off your bank’s website to create data points. The messy way that it functions can lead to inaccuracies and privacy concerns, and data scrapers often struggle with financial institutions that try to make it difficult for the software to work. Even worse, Canada is moving slowly to implement open banking compared to other Western countries.
Canadians aren’t just missing out on budget apps. Open banking could spur widespread innovation in the financial industry. There could be programs to recommend the best bank accounts or credit cards based on detailed tracking of your spending habits. For people with bad credit scores, it could help them pass rental applications by using a service that parses through their bank history to prove they always pay their rent on time. One company in Britain even auto-deposits cheap microloans into bank accounts so people can avoid going into overdraft and paying steep fees by accident.
Perhaps most importantly, open banking would heighten competition against the major banks. Consumers who share their spending data could get tailored advice for specific bank accounts or loans, and it’d be much easier for consumers to see how smaller banks could offer better value in some cases.
The 2024 federal budget made some small commitments to advancing open banking, including naming a government body that will oversee open banking regulations and giving it $1-million in initial funding. The Department of Finance will also get $4.1-million over three years to develop policy around open banking.
Those are important initial steps, but many experts in the financial industry were disappointed that there wasn’t clearer timeline for the implementation of open banking, or more resources put toward setting up the technical infrastructure needed for it.
“A million dollars pays for an office space, a couple of secretaries and a consultant. You can’t do anything with that,” said Andreas Park, a finance professor at the University of Toronto.
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“What we’re currently seeing is the absolute minimal amount the government could do without losing face.”
Prof. Park’s views are among the most pessimistic for open banking in Canada. He doubts that it will ever be achieved here, since banking is so consolidated among our biggest institutions and it’s not in their interest to have a framework that increases competition.
He points to the lack of real-time payments, a system that allows you take make instant payments for things such as credit card bills. Canada launched an initiative to implement real-time payments in 2012, and 12 years later that still hasn’t happened. Meanwhile, he says, it took Brazil nine months to create a real-time payment infrastructure in its fairly complicated financial environment.
Part of the challenge is getting consumers to care. Andrew Graham, chief executive officer of Borrowell, which helps Canadians with their credit, said open banking doesn’t mean much to people.
“The term open banking doesn’t mean a lot to many people and that’s for good reason, it’s sort of the pipes behind the scenes,” said Mr. Graham.
“It can be hard to generate a groundswell of support for it, but it’s absolutely the right thing we should do and we’re behind virtually every other industrialized country in doing it.”
Setting up that infrastructure could lead to a system that Canadians couldn’t imagine being without in the future. Andrew Moor, CEO of Toronto-based EQ Bank, likened it to features such as tap payments from your phone and e-mail money transfers. They would have been hard to imagine a couple decades ago, but are almost benign today.
The difference is that open banking could have drastic impacts on people’s financial lives, especially for low-income people or people with bad credit. Imagine if creating a debt repayment plan with the lowest interest costs was as easy as logging into an app, rather than scheduling an in-person appointment.
Or what if newcomers to Canada were keenly aware of all the no-fee bank accounts and low interest credit cards available to them and could get tailored advice on the best way forward?
Open banking would take the friction out of processes that are currently possible, but take a lot of time and effort to do.
Barry O’Donohoe has helped set up the data-sharing infrastructure behind open banking in several countries, including in Britain, where his company Raidiam is based.
He agrees that Canada’s implementation has been slow because of the consolidated banking environment and the country’s reputation as a conservative financial market. His message to big banks that may lobby against open banking is that they could use their resources better to be at the forefront of the technology.
“In other markets it’s turned out to be a boon for the major banks that did it right,” said Mr. O’Donohoe.
However, Prof. Park says it will ultimately be up to Ottawa to move decisively on open banking. He said no other economy has implemented open banking by letting the market create it, because it’s not in the interest of current major players.
Without change, he said consumers will remain in the dark when it comes to choosing the best financial products for them.
“People have gotten so used to the way the banks work and they’re not thinking about how much they might be giving up,” said Mr. Moor.