Open banking's transatlantic journey
Big changes are on the horizon for banking systems in both Canada and the UK, as governments and industry players are exploring the potential of open banking in greater detail. The UK is already well into the game, with organisations like the Centre for Finance, Innovation and Technology (CFIT) leading the next wave.
Across the pond in Canada, the government is pushing forward with plans to adopt open banking, announcing that new open banking legislation can be expected soon.
Empowering consumers and businesses with open banking
Open banking can empower consumers with more financial technology services by allowing them to securely share their financial data with third-party applications, such as budgeting apps or financial management tools. This enables consumers to access a wider range of services tailored to their financial needs, including personalised budgeting advice, investment management, and loan comparison services.
Through using open banking, lenders are enabled to make more accurate and timely lending decisions, improving access to credit for individuals and small and medium sized enterprises (SMEs). With access to a consumer's comprehensive financial data, lenders can better assess creditworthiness and offer more competitive loan products. This can help individuals and SMEs secure financing they may not have had access to previously.
Open banking also reduces administrative burdens for businesses by streamlining processes such as account verification and transaction reconciliation. By automating these tasks through secure data sharing, businesses can save time and resources, allowing them to focus on core operations and growth initiatives.
The UK's open finance taskforce
While the original intent of open banking (OB) in the UK was to facilitate personal finance and budgeting apps, it has primarily found traction in assessing credit risk.
The UK's progress in open banking is evident with the establishment of the Open Finance Taskforce chaired by CFIT, indicating the country's ongoing commitment to advancing in this area.
Ezechi Britton MBE, chief executive officer of the Centre for Finance, Innovation and Technology, said: “Britain has long led the way when it comes to innovation in financial services, and open finance is the next great opportunity for our economy. So, we’re delighted to have been invited by the EST to chair a new industry-led taskforce of leading financial institutions and technology companies. CFIT was founded last year to unblock the barriers to the growth of the UK fintech industry and today’s announcement will ensure we continue to keep up the momentum.”
This industry-led taskforce is focused on identifying and prioritising use cases for open finance, as well as unlocking data sets and creating APIs to facilitate better SME finance availability.
CFIT's Open Finance Coalition has already set out recommendations to stimulate £30.5 billion of GDP growth through open finance and personal data mobility. One recommendation from the Coalition is to create an Open Finance roadmap as a component of a comprehensive regulatory framework.
Canada's move towards open banking
On April 17th in Canada, the government announced in its budget that legislation for an open-banking system should be expected soon, expanding the role of the Financial Consumer Agency of Canada (FCAC) to encompass oversight, administration, and enforcement of consumer-oriented banking.
According to Reuters, “an estimated 9 million Canadians are already sharing their financial data by providing confidential banking credentials to service providers that can be accessed through screen scraping.”
By enabling secure transfer of financial data to third parties, open banking enhances data security and privacy, while also serving critical needs in credit risk assessment. This shift highlights the potential for Canada to follow a similar trend to the UK - focusing on leveraging OB data for assessing credit risk rather than solely for personal finance applications.
Nick Schiavo, CCI director of federal affairs said: “Taking tangible steps forward on Open Banking is welcome news. Canada has incredible financial innovators, and with the appropriate regulatory framework in place, the sky’s the limit for improved financial services for citizens.”.
The future
As governments and industry players collaborate to navigate challenges such as cybersecurity and consumer education, specific opportunities for innovation and growth in the financial sector emerge. These include advancements in fintech solutions, such as digital identity verification and AI-driven fraud detection, and the expansion of financial inclusion initiatives to underserved communities. With a concerted effort to address these challenges, the financial sector stands poised for transformative growth and technological advancement.
This is evident in the announcement of budding initiatives in Canada and the UK, which indicate a global shift towards open banking and represent a change in the financial services industry towards being more digitised and user orientated. These initiatives set the stage for a more connected, efficient, and consumer-centric banking landscape in both countries – empowering consumers with more financial technology services, improving access to credit for individuals and SMEs, all while reducing administrative burdens for businesses.
