Government faces little pressure to improve system for consumers.
Plans to introduce open banking in Canada are moving ahead in low gear, and there are no signs the federal government is likely to speed things along.
It’s been five years since the government first said it wanted Canadians to have control over their financial data and the ability to easily share that information with financial service providers of their choice.
At the time, the plan was that this shift would spur competition, lower costs and provide consumers with new services, especially from innovative fintechs. The changes would mirror developments in Europe, the U.K., Australia and the United States. Flash forward to now, and all those countries have open banking in place—some have had it for years.
Here in Canada, the federal finance department was expecting to receive a report from outside consultant Abraham Tachjian in September that he said will be “an open banking bible” the government can use to move forward. But once Tachjian delivers his report, he’s heading back to his real job with PwC and the implementation of his suggestions, or not, will be up to the Finance Department.
But on Oct. 2 Tachjian announced on his LinkedIn page that his work wasn’t done.
“I am happy to report that I will continue as Canada's open banking lead until the end of the year,” he wrote. “When I started, I mentioned that my goal was to enable Canadians and businesses to gain greater control over their financial data and be better equipped to manage their finances. I remain committed to this and will continue to work with all stakeholders to make it a reality in Canada.”
Earlier when asked a series of questions about the status of the open banking initiative, the Finance Department responded only: “The Department of Finance and the Open Banking Lead are continuing their work at this time.”
Its lack of public relations enthusiasm is not surprising from a minority government that is trailing badly in most popularity polls. The promise to introduce open banking has clearly been dropped from the Liberal government’s agenda; the budget last spring made no mention of any promises about open banking. Surveys show most Canadians don’t know about open banking and those who do aren’t that interested in trying it. Even the Canadian fintechs that have been pushing and hoping for it to be introduced have largely given up.
In early October, several fintechs launched a campaign to encourage Canadians to push the federal government to move faster on open banking and payments modernization.
The Choose More campaign—coordinated by Wealthsimple, EQ Bank, Wise, Flinks, Xero Canada, Borrowell and industry group Fintechs Canada—says “Canadians deserve banking that lets Canadians keep more of your money in your pockets. It’s time to demand that the government upgrade Canada’s financial system.”
Open Banking Still in Early Stages
Michael Garrity, CEO of Financeit, a Toronto-based company that provides quick consumer loans through more than 8,000 businesses, says Canada “is quite delayed by international standards, and we’re still in the early stages of thinking it through and deciding how is it going to get implemented.”
The U.S. Consumer Financial Protection Bureau intends to introduce regulations around open banking in October and expects to roll them out next year. At an industry conference in May, Tachjian noted Canada could soon be the only G7 country without an open banking system if it doesn’t move forward: “We run the risk of falling behind our peers.”
But Jeff Guthrie, president/CEO of the Canadian Credit Union Association, has a more optimistic view. “It’s not about getting open banking, it’s about getting open banking right,” Guthrie says. “I think other jurisdictions have shown it’s one thing to get open banking. It’s a different thing to get it right and get it in a place where it can benefit all the parties: consumers, the financial institutions and fintechs.”
He notes that the Canadian landscape is different and more complex than other countries because most credit unions are regulated provincially, and those variations need to be considered. “If you look at Australia, they basically mandated financial institutions to adopt it, and consumers haven’t followed. So, they spent a lot of money, and no one uses it.”
In part because of the complexity, Ottawa has not set a firm deadline for open banking. “We’re not working towards a deadline, so that’s a little different than we’ve seen in other jurisdictions where they have said, ‘Thou shall be open-banking compliant by an X date,’” Guthrie says. “We don’t have that.”
Guthrie is confident that details will be hammered out next year and an acceptable system will be rolling out in 2025.
But everyone interviewed for this story agreed that the fact there must be a federal election by Oct. 20, 2025, and the strong possibility of a different government, could force more delays. The Conservatives have not released any policy plans, but on the economic front, Pierre Poilievre’s focus has been on inflation and housing issues.
Also, the reality is that Canada’s big banks are not keen on open banking since it is specifically designed to make it easier for consumers to get services from other companies. For example, the Canadian Bankers Association last posted an item on the topic on its website on Jan. 31, 2020, and didn’t respond to questions about what the banks think now, almost four years later. In January 2022, Bharat Masrani, Group President/CEO of TD Bank, said he was happy with an industry-led approach that TD was involved with in the U.S. but was wary of what might be adopted in Canada and preferred a similar method here.
Banks In No Hurry
Garrity says the oligopolistic nature of the Canadian banking system slows the introduction of such changes as open banking. He notes that the system was the envy of the world post-2008 when it protected banks and consumers from financial chaos. “But the trade-off for that bubble wrap around you in moments of distress is that you get lower quality products at a higher cost than you would in an open-banking environment or in a more competitive banking environment where competition drives innovation and price reduction.”
Where does this leave credit unions? What do CEOs and boards need to know and what decisions do they need to make now?
Guthrie says credit union CEOs and boards will need to know how open banking is developing by keeping informed and understanding the challenges. “We’re in an interesting spot right now. I think if his (Tachjian’s) final recommendations are out and released and people can start talking and looking through them, then … you’ll see a whole new set of activities and discussions.”
In a nutshell, open banking is a system that will allow consumers to securely share their verified financial information with accredited financial service providers. It will make it easier for individuals to aggregate data from various financial institutions, to open new accounts and apply for loans and mortgages and eventually give instructions to move their money around automatically when certain conditions are met.
The CCUA is spearheading the open banking effort for the credit union system and has been involved in innumerable meetings with federal officials since the concept was announced in the 2018 Federal Budget. Earlier this year it held webinars with David Hooper, VP/open banking and payments consulting at CGI Inc., to explain the challenges and opportunities for credit unions.
The Large Credit Union Coalition, which represents Canada’s largest credit unions with over 2.8 million members and $150 billion in assets, plans to develop an open-banking utility that credit unions will be able to use to share data. Last December it announced a request for proposal to find a technology partner, but in April it said that “due to an extended due diligence period and persisting uncertainties about the regulatory requirements that will affect the utility’s design, the original timeline has been extended” and no partner had been selected yet.
Hooper says credit unions have to pay attention to open banking and realize “it’s got the potential to fundamentally rewrite the rules.” He says the focus until now has been on the technology and the data, but for credit unions, the key will be services.
“At the end of the day, if there’s any data sharing to take place, it’s because a member has found a service that is going to help them manage or make their lives easier or assist them to increase their financial well-being. That’s always got to be the focus: What is the service that the member needs to resolve pain points or address unmet needs?”
Guthrie expects there will be phases to the implementation of open banking. The first step will be member accreditation, which will aim to eliminate the current use of screen scraping “which is really password sharing, which is not the best way to exchange data. Let’s get data flowing, which helps the consumer and helps small businesses.”
The next phase will make it easier to apply for financial services. Now, when applying for a loan or mortgage, the individual must provide all the evidence to prove their identity and financial status. “In an open banking environment where I’m totally accredited, my identity has been verified by a trusted party, and I can exchange data openly, and the receiving party can know that that’s authentic data.” That will speed the application and approval process along.
Garrity agrees that this development will lower costs and increase efficiency for fintechs like his that want to offer new services, since they won’t have to go through the process of verifying identity.
Guthrie says the final iteration of open banking will be the introduction of capabilities that will allow consumers to instruct their service providers when to act. This phase, called the ability to write data, is not included in the current process.
“This is likely way off at this point, but it is where I, as a consumer, can say to financial institutions, ‘When this condition happens, I want you to do this. So, when I get X money, move it here. When I get Y, pay down X.’ That gets pretty interesting, especially as we start to see the power that AI will have going forward.”
But opinion surveys currently show limited awareness of open banking and limited willingness to use it even once it is explained to consumers.
In June the Financial Consumer Agency of Canada released a report that showed awareness of open banking is very low (9% surveyed had heard of it) and, as a result, consumer interest in using open banking is low (15% surveyed said they would use it, 29% said maybe, 52% said no).
And a recent study by Deloitte Canada found that only 18% of respondents had even heard of open banking and its first recommendation was that FIs need to make education about the development a top priority.
Nearly one in three Canadians believe they would benefit from the availability of investment advice through open banking, Deloitte’s online survey found. Among the most attractive uses of open banking were the ability for consumers to get a complete financial picture of balances across all their accounts (37%), the ability to track their spending patterns (33%) and suggestions for investment and savings opportunities (32%).
While only 35% of respondents said they are currently comfortable sharing banking data online, 45% of respondents said they would feel comfortable sharing financial data through open banking.
“Overall, it seems that Canadians can recognize the benefits of open banking and are likely to embrace it once it goes live,” the report concluded.
Identify Unmet Needs
Hooper says his message to credit union leaders is that they need to examine what their members identify as unmet needs and what services they want. Then, the credit union can determine: “What of my existing products and services can I improve by getting data from outside sources and what new services can I offer that will require data from other sources?”
This may not require immediate action.
“Do you need to be there day one? Maybe, maybe not. It’s quite possible you could say no and be a fast follower. Is that in six months or two years? Let’s watch how things are unfolding.”
But Hooper suggests credit unions don’t need to wait to get started and could implement many of the benefits of open banking now by working together to set up a cooperative data-sharing framework.
“There are a lot of what I call ‘no regret actions.’ I think there are safe investments to make,” he says.
For example, Hooper says credit unions know they will have to educate their members and could start that process now.
“There’s no reason you have to wait to be told to do something,” he notes. “You have a ready-made ecosystem within the cooperative movement in Canada. You could begin to share data amongst yourselves.”
But he acknowledges it would require a shift in mindset.
Garrity says from his perspective there are three possible scenarios for the move toward open banking.
“The ideal scenario would be the federal government implements this with federally regulated institutions,” he says.
“The second scenario is the one that we’re in right now, which is government keeps talking and nothing gets implemented. More consultation, more round-table discussions, more inclusion of smaller parts of the banking ecosystem to ensure that their voices are heard. It’s a Canadian approach that means lots of talk and very little action.
“Option three is the federal government punts its responsibility entirely and works with the major banks to designate a banking entity to act as the centrepiece of open banking, and then they hand the whole mandate over to a heavily biased third party like Symcor, which is currently the name being floated. Having them arbitrate an open-banking framework that is meant to be to the benefit of non-bank players would literally be putting the rooster in the hen house.”
Consumer Pressure Unlikely
Garrity worries that the only way to stop option three is if political pressure is applied by individual consumers and small businesses who realize they are getting a raw deal. “The likelihood that that’s going to happen with all the other things happening right now, I think, is insignificant.”
Provincial regulators have been involved in the open banking working groups but won’t be able to give final approval for the regulations affecting the credit unions they oversee until they get the final plans, Guthrie says. “Everyone recognizes there’s not going to be an Ontario version of open banking and an Alberta version and a B.C. version.”
Guthrie says one challenge in educating people about open banking is that some hear the word “open” and assume their data will be more accessible and at risk, not less, which is the reality. Another issue is that acceptance of it may get caught up in the conservative worry about digital ID initiatives.
He acknowledges that development of digital ID has been politicized but insists it is not tied to open banking. “These are separate and distinct; digital ID is a whole different thing. Unfortunately, people keep trying to attach the two.”
Hooper agrees member education will be essential. “I think there’s an education process to say this is what open banking really is. It’s about consented data sharing. No one’s coming to get your data unless you sign up for something. No one’s going to ask your credit union for your data unless you subscribe to some kind of service. In the end people don’t care about APIs. They don’t care about the details of security. They just want to know that if I pick this service, it’s not two dudes in a garage who made an app on the weekend.”
Art Chamberlain is a freelance reporter who focuses on the credit union system.