Building trust: Consumer confidence and open banking in Canada

Open banking is transforming financial services around the world. This model, which hinges on expanding access to consumer data, facilitates the development of new solutions and, in doing so, drives competition in the sector. Open banking allows third parties such as fintechs, currency exchanges and merchants to use a secure API (application programming interface) to obtain client information stored by traditional financial institutions. Understandably, to ensure consumer adoption, it is imperative that all prospective stakeholders establish a foundation of trust.

In the latest federal budget, the Government of Canada shared plans to establish a framework to facilitate the implementation of open banking. Although these efforts are well underway, Canada is lagging behind other G7 nations in this realm. Countries such as India and the UK have already spent years exploring the challenges and opportunities involved in open banking in the process of building a framework that serves the needs of their populations. Key use cases from these jurisdictions illustrate how institutions and fintechs in this country can create an inclusive system that will best support all Canadians.

Discussion highlights:

• Transforming the loan market. By identifying issues that have been barriers to participating in the financial sector, prospective lenders can develop more inclusive products and can secure new customers within groups who may not meet criteria to secure traditional loans.
• Novel financial products and services. Open banking provides opportunities for financial institutions and fintechs to support the needs of marginalized communities. Halal mortgages, which are structured to accommodate devout Muslim clients whose faith prevents them from participating in interest-generating transactions (in Sharia law, interest is viewed as a form of usury), are a key example of such an opportunity. Open banking can also help mitigate barriers that have prevented small businesses and international firms from gaining a foothold in the Canadian financial sector.
• Integrated commerce. By transforming payment systems and optimizing interoperability, open banking creates a seamless shopping experience for consumers.