{"id":3653,"date":"2023-03-23T12:11:06","date_gmt":"2023-03-23T16:11:06","guid":{"rendered":"https:\/\/www.indigoconsulting.ca\/?p=3653"},"modified":"2024-01-31T18:12:17","modified_gmt":"2024-01-31T23:12:17","slug":"open-banking-in-canada-everything-you-need-to-know","status":"publish","type":"post","link":"https:\/\/www.indigoconsulting.ca\/fr\/blog\/open-banking-in-canada-everything-you-need-to-know\/","title":{"rendered":"Open banking in Canada: Everything you need to know"},"content":{"rendered":"
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\"Open<\/p>

Innovation has been on the rise throughout the financial<\/a> industry recently. Both fintech startups and major banks are evaluating the financial services industry to identify opportunities for improvement.<\/span><\/p>

One major hurdle has significantly hindered potential innovations \u2014 the necessary privacy and protection of banking data. So how can a startup offer a unique service leveraging your bank data when you have to trust them with your banking login?<\/span><\/p>

Fortunately, a new solution has emerged: open banking.\u00a0<\/span><\/p>

The open banking API is a method of securely sharing banking data between trusted parties without requiring the user to provide login credentials. This innovation gives consumers greater control over the security and control of their sensitive information.<\/span><\/p>

Open banking is currently preparing for implementation in Canada. Meetings were held throughout 2022 to determine liability, accreditation, security, and privacy. Outcomes from those <\/span>meetings are publicly available<\/span><\/a> while Canada moves towards full deployment.<\/span><\/p>

We\u2019re firm believers that open banking lays the foundation for a new wave of powerful innovations for the benefit of consumers and businesses. So keep reading to learn everything you need to know about open banking in Canada.<\/span><\/p>

What is Open Banking?<\/span><\/strong><\/h2>

Open banking provides a framework and API for sharing personal financial information with third-party organizations. These third parties are typically fintech startups or other financial services providers that would otherwise require your login information to obtain your information.<\/span><\/p>

For example, a mobile application that helps consumers manage their monthly expenses and work towards long-term savings goals can use open banking to request the necessary information. Apps like this exist but require you to provide login credentials to your bank.<\/span><\/p>

Open banking allows these same financial management applications to provide the same services without asking consumers to log in to their bank accounts. Instead, the open banking API will securely request this information from the consumer\u2019s bank account in the background.<\/span><\/p>

The technology that makes open banking possible is already developed, but you can see how implementing the API can be a challenge. For example, consumer data must remain secure, all current regulations must be considered, and an accreditation process must be implemented to determine which startups can use open banking.\u00a0<\/span><\/p>

Canada is still moving towards deploying open banking. So let\u2019s look at another country where the API is already in motion to see how it works in practice.<\/span><\/p>

Open Banking in the United Kingdom<\/strong><\/span><\/h4>

Open banking is already deployed in the UK and rapidly growing in usage and utility. The Open Banking Implementation Entity (OBIE) initially oversaw the deployment of the API and now continually provides updates and guidance.\u00a0<\/span><\/p>

A recent OBIE report discovered that over <\/span>6 million individuals and businesses throughout the UK<\/span><\/a> regularly use open banking services. Another report focusing on the open banking API found that it is consistently <\/span>above 99% throughout the UK<\/span><\/a>, indicating the success of implementation and availability.<\/span><\/p>

In a <\/span>statement accompanying its latest report<\/span><\/a>, Charlotte Crosswell, OBIE chair said, \u201cI am really pleased to see continued growth of open banking products across consumers and SMEs (Small and Mid-size Enterprises). From allowing people to get their mortgage approved more quickly to paying HMRC (HM Revenue & Customs), utility bills or charitable donations, the products available continue to grow and are becoming more visible.\u201d\u00a0<\/span><\/p>

Looking to the United Kingdom gives insights into how open banking may impact Canada. But will Canada also see quick adoption and an entirely new wave of innovative financial services?<\/span><\/p>

How Does Open Banking Work in Practice?<\/span><\/strong><\/h4>

What does all this mean for consumers and businesses? Let\u2019s briefly discuss how a consumer might use open banking when setting up a new app. The typical process will look something like this:<\/span><\/p>

  1. Find an app that helps you shop around for mortgages<\/span><\/li>
  2. The app prompts you to link your bank account<\/span><\/li>
  3. You authorize your bank to share financial data with the application (via the open banking API)<\/span><\/li>
  4. Your username and password are not required at any point<\/span><\/li>
  5. Financial data is shared securely between the bank and the application\u00a0<\/span><\/li><\/ol>

    This example focuses on the consumer, but a similar utility can also apply in B2B relationships to streamline sharing of sensitive information.\u00a0<\/span><\/p>

    Additionally, open banking allows startups, such as the mortgage comparison app in our example, to more easily acquire new customers since less trust is required to start using their services. As a result, open banking in Canada will likely allow for new innovation and growth throughout the financial services industry.<\/span><\/p>

    Why Do We Need Open Banking?<\/span><\/strong><\/h2>

    Open banking is a reaction to security concerns over the current methods for allowing an organization to access sensitive banking information.<\/span><\/p>

    Every example we\u2019ve provided already exists but uses a process called \u2018screen scraping\u2019 to request, store, and use login credentials. It allows startups to build their applications but also creates a variety of security concerns.\u00a0<\/span><\/p>

    Screen Scraping vs Open Banking<\/strong><\/span><\/h4>

    You may have used a screen scraping application to connect your bank to a specific financial service or even another bank account. This process asks for your login credentials and continually uses them to obtain necessary information related to the service.<\/span><\/p>

    The significant risks with the screen scraping process are:<\/span><\/p>