Steve Boms is executive director of the Financial Data and Technology Association of North America and president of Allon Advocacy, a Washington-based public policy firm.
In May, Navdeep Bains, the federal Minister of Innovation, Science and Economic Development, announced a Digital Charter that presents 10 principles for modernizing the rules that govern digital technology in Canada.
The third and sixth principles are particularly important for Canada’s move toward Open Banking. The third states “Canadians will have control over what data they are sharing” and the sixth that the government “will ensure fair competition in the online marketplace.”
While these principles sound straightforward, in practice they would be a game changer. That’s because in Canada today, banks control consumers’ information. They decide when – and if – they will share consumers’ data with competing providers. Even if a consumer gives his or her express consent to allow the bank to release information to another party, a Canadian bank is today within their rights to choose not to do so.
In fact, they are choosing not to do so every day. At least three of the Big Six financial institutions – Canadian Imperial Bank of Commerce, Bank of Montreal and Bank of Nova Scotia – regularly override their customers’ request to have their data shared with other providers. And since the largest six banks in Canada control 96 per cent of the market, this obstruction regularly keeps millions of Canadians from accessing new and innovative financial products that could, for example, help them better manage their money, save for retirement or get a better interest rate when buying a home. This practice doesn’t just undermine the principles of the Digital Charter – it directly harms consumers. Concerns over this serious lack of competition prompted the Competition Bureau to conduct a market study in 2016 and is why the government launched consultation on the merits of Open Banking.
Data from the Canadian Bankers Association (CBA) indicate consumers are hungry for more digital options. As the CBA notes, 76 per cent of Canadians are using digital channels, both online and mobile, to conduct most of their banking transactions and nearly nine in 10 have used online banking in the past year. Demand is also expected to grow. Thirty-six per cent of young people rely primarily on banking applications, 13 percentage points more than the population as a whole.
The financial institutions represented by the CBA will say consumers trust them (and only them) to provide these services, but Canadians are skeptical of traditional banks. A 2016 survey by the University of Victoria’s Peter B. Gustavson School of Business found Canadians are more likely to trust their toothpaste brand than any of the largest six banks. Things didn’t look much better in the 2019 survey. While Crest and Colgate were in the top 50 brands, not one of the largest six banks were. (The banks’ argument also ignores the fact the principles of the Digital Charter – and the principles the Financial Data and Technology Association of North America has outlined for Open Banking – seek to enhance consumers’ privacy and security.)
Consumers’ opinions about banks will wane even more when they begin to understand those same financial institutions are preventing them from accessing other tools in the marketplace.
In fact, there are some signs consumers are already voting with their feet. According to the J.D. Power 2019 Canada Retail Banking Satisfaction Study, younger customers are three times more likely to switch banks than older customers. Paul McAdam, senior director of banking intelligence at J.D. Power, advised, “Younger and digital-centric customers are vital to future business growth, but younger customers are more likely to receive inconsistent service levels. … Banks that don’t address the gaps in service expectations are at an increased risk of client departures.”
An Ernst & Young report issued earlier this year called for improved competition. It advised pto take three steps, including to “adopt an open approach to spur innovation at scale and provide a level playing field to all participants versus the current ‘walled garden’ approach.” The firm said these measures would enable financial institutions to “deliver greater value to consumers.”
When fully implemented, the Digital Charter should put an end to banks’ anti-competitive practices. But financial institutions should not wait until they are forced to comply with the government’s demands to let consumers be in control of their own data. They should start doing so now. Moving toward a system where all players in the ecosystem co-operate to respond to consumers’ demands is not only a matter of fairness, for banks it is a matter of self-preservation.
Canada’s Digital Charter recognizes that. Will banks?