Yves-Gabriel Leboeuf, founder and chief executive of flinks in their office in Montreal, Que., on Feb. 4, 2019.Christinne Muschi
Canadian financial technology companies are poised to benefit from potential changes to the banking system that would force competitors, such as the big banks, to share their clients’ financial transaction data at the customer’s request.
The concept, known as “open banking,” is the creation of digital channels to exchange customer information directly between financial institutions and other parties. The information can be used, for example, by consumers with accounts at one institution applying for a loan or mortgage with another. If open banking becomes an industry standard, it would give fintechs more room to grow their products and services in a market dominated by larger financial institutions.
“Open banking, if implemented, would put the choice of working with fintechs in the hands of the customers,” says Sue Britton, CEO and founder of FinTech Growth Syndicate, a fintech accelerator and consultancy. “Open banking will encourage innovation. It will foster some competition and it will be really good for consumers.”
The federal government is reviewing the merits of open banking and launched an advisory committee last fall to lead a public consultation process. The committee is taking submissions until Feb. 11 and is expected to write a report for the government to consider next steps.
In a paper released in January, Ottawa said open banking, which is already mandatory in places such as the United Kingdom and European Union, would need to “secure customer trust by having appropriate consumer protection and privacy safeguards, and support the safety and soundness of the financial sector.”
A recent PwC report forecasts open banking would be “a major transformation” for this country’s financial services ecosystem. Open banking has the potential to reduce costs, the report says, as well as mitigate risks such as fraud and money laundering since sharing data between institutions could make it easier to spot strange activity.
Many fintechs, alongside banks and other organizations involved in the sector, are submitting comments to Ottawa’s open banking advisory committee in the hopes of shaping policy for Canada’s financial services system.
Mr. Leboeuf with a colleague in their office in Montreal, Que., on Feb. 4, 2019.Christinne Muschi
Yves-Gabriel Leboeuf, CEO of Montreal-based Flinks, a self-described “open-banking enabler,” believes new legislation would create a more level playing field in the financial industry.
“The end goal for us is to make sure consumers can easily access the information they want and the product they want," from all financial institutions in Canada, Mr. Leboeuf says.
Flinks already helps financial institutions and other fintechs connect their users to their bank accounts. An example is Koho, a banking app that uses Flinks to verify its users’ identity. Flinks has agreements with a number of big and small financial institutions, including some of the Big Six banks, that enables their bank account holders to allow a third party to access their financial information.
Flinks and other fintechs want Canada to establish an open banking system based on a principle of data access and sharing, which in turn allows them to offer more products and better interact with other financial services players.
“We want to make sure we stay in a competitive environment,” Mr. Lebeouf says. “My wish is for an even more competitive environment.”
Andrew Graham, co-founder and CEO of Toronto-based Borrowell, says open banking will speed up the borrowing process for consumers through platforms such as his – which provides free credit scores and reports and recommends and offers loans to consumers and businesses – by providing more seamless transfer and compilation of data. For instance, it could enable a borrower to access his or her accounts with different financial institutions when seeking a loan.
“It’s about more choice for consumers,” Mr. Graham says. “Open banking will make it easier for them to see all of their accounts in one place, easier to switch between financial institutions and to add new financial technology options to the mix.”
Mr. Graham and others in the industry argue Canada needs better open banking rules to remain globally competitive.
“I think there’s a real opportunity for Canada to step up and take a leadership role in open banking globally,” Mr. Graham says.
The Canadian Bankers Association, which represents domestic and foreign banks in Canada, declined to be interviewed, saying it would be “premature” while the advisory committee’s comment period is still open. However, in an e-mail statement to The Globe, the CBA said it “supports the federal government’s efforts to explore the merits of open banking in the Canadian context and how it could work here.”
A recent report from Moody’s Investors Service Inc. said Ottawa’s exploration of open banking is a negative for Canada’s Big Six banks because it “has the potential to incrementally weaken the industry’s favourable industry structure of a few concentrated players, and therefore the banks’ retail franchise strength and associated high profitability.”
The PwC report suggests open banking could be good for big banks that are proactive in finding business opportunities with open banking, noting that in places such as the U.K., customers prefer to stay with their existing banks. It also suggests open banking could deepen partnerships between fintechs and banks to offer new products for consumers.
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