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Daniel Cascone, sector leader for financial services with IBM Consultingsupplied

As industries worldwide continue to adopt digital capability, it could be argued that financial services digitization is transforming and accelerating all other industries. In addition, regulatory requirements and market forces in financial services are further pushing the pace of change. Initiatives such as real-time payments and competitive offerings from fintechs to big tech are driving the need to adopt change, with little time left for our Canadian financial institutions to prepare.

One of the major catalysts for change is open banking. The concept is straightforward: to allow clients to securely share their financial information with financial services providers. The goal: improving customer access to the best products and services to fulfill their unique needs.

As more and more Canadians have relationships with multiple financial services providers, such as banks, fintechs, wealth managers, insurance and online trading, the need has never been greater.

“But right now, the customer would have to bring all their data together either manually or by providing confidential online access,” says Daniel Cascone, sector leader for financial services with IBM Consulting Canada.

Typically, that’s done by a process called screen scraping, in which customers share credentials and passwords between service providers. “Which is both time-consuming,” Mr. Cascone says, “and presents serious security risks.”

Open banking greatly reduces that risk and makes unifying customers’ financial lives far simpler while enhancing the end-to-end consumer journeys.

“Imagine three individuals who want to start a business together,” Mr. Cascone explains, “and require banking services ranging from deposits, payments, business loans, etc. In today’s world, all three would need to provide their data through a screen scrape or by manually collecting it and providing it via email or hardcopy.

In an open banking world, once the individual provides their consent, the required information is digitally accessible by the required financial services provider – which not only improves the experience but also provides access to a variety of potential products or services.”

But if the idea is simple, the execution may be complex. Last April, an expert federal advisory committee submitted a report on open banking to finance minister Chrystia Freeland. It recommended that government and industry partners collaborate to design a Canadian open banking system by January 2023.

The government’s role will be to provide regulatory standards governing the Open Banking API, an application programming interface that will set out data exchange, security and privacy standards for the system.

“Think of it like an electrical standard,” Mr. Cascone says. “The government decided the standard for electrical outlets, including the size and shape. A customer purchasing a new appliance, computer or TV typically doesn’t think about the ‘plug’ as a primary area for focus. They look for functions and features on how they intend to utilize the item.”

However, industry adoption and regulatory progress have been slow. Several countries are already out in front of Canada, including the U.K., Australia, China and U.S. Some of these international approaches have been led by governments (the former two) and others by industry (the latter two).

Mr. Cascone believes Canada’s approach should be a hybrid: primarily market-led but facilitated and regulated by the federal government to ensure security and compatibility. The government can also play a role in accreditation to establish a more transparent and equal playing field.

Of course, even once those standards are in place, the transition to open banking will remain a major technological and cultural shift for many banks.

“There’s definitely comfort with the status quo given that Canada’s banking system is the envy of the world,” says Colleen Johnston, former chief financial officer at TD Bank and a member of the government committee on open banking. “However, an open banking regime is largely about creating a safe way for customers to transfer their financial information to accredited organizations. This regime will support greater prosperity and innovation for Canada.”

Mr. Cascone concurs and suggests that many banks are concerned about the perceived business risk of sharing data.

“They’ve spent years cultivating and protecting that data,” he says. “And now they’re being asked to provide it with limited understanding of its intended use and any reciprocal benefits.”

But those benefits may be vast, including greater insight into their customers’ financial lives, an opportunity to tap into new customer segments, and an ability to better match products and services to them.

Open banking fundamentally is a building block on a journey to open ecosystems, and the opportunity for financial institutions is to benefit the consumer – to embed financial services into journeys. For global banks that have embraced open banking, it has increased their bottom lines, improved the overall experience, provided access to new customers and enabled new products and services by integrating it all.

IBM is already working with leading-edge Canadian institutions on open banking transformation; both as a technology partner helping clients navigate a complex new technical landscape, and as a strategic partner helping them better understand the business complexities.

Thanks to the company’s deep roots in Canada’s banking landscape and experience as a leading partner with global financial institutions working on open banking, IBM is ideally positioned for the role.

“Our business and architectural knowledge in the financial space has been developed through decades of experience, building and operating most of the platforms that are in existence today,” Mr. Cascone says. “And that’s true globally as well. For example, approximately 85 per cent of all global payments, after all, have IBM developed components.”

IBM’s expertise marries both technological and business considerations: standards implementation, security and compliance, artificial intelligence and beyond. It brings the technology, platforms and tools needed to build, host and run Canada’s open banking system, while also helping financial institutions be part of the innovation ecosystem.

“We have a unique ability to bring it all together, including our ecosystem of partners,” Mr. Cascone says.

Canadian banks are in a position to be the ‘trusted’ institutions to hold our data securely and share it with the right privacy safeguards in place. Continued collaboration with fintechs will keep them at the forefront of the innovation ecosystem.

And the future is about to accelerate. On March 22, Canada appointed its open banking lead, Abraham Tachjian, reporting to the deputy minister of finance, signaling a renewed urgency on the file.

“Banks are in a position to help lead the change,” Ms. Johnston says. “And I encourage them to continue coming to the table in a spirit of collaboration. A uniquely Canadian solution is definitely possible.”

Advertising feature produced by Globe Content Studio with IBM. The Globe’s editorial department was not involved.