Open Banking: Consumers Must Have Right To Share Data

  • National Newswatch

Millions of Canadians have turned to financial technology, or fintech, which provides intuitive, accessible platforms that enable even the least financially savvy consumers to manage finances and improve economic outcomes.Fintech applications allow Canadians to see the totality of their financial accounts in one place, find lower loan rates or better loan terms or avoid predatory products and services, and compare fees across different product offerings. Some apps even offer personalized investment and wealth management advice, or help consumers to get out of debt. At a time when the average Canadian owes about $1.70 for every dollar of income after taxes and eight percent of indebted households owe 350 percent or more of their gross income these tools are especially important.According to Ernst and Young, 8.2 percent of digitally active Canadian consumers used two fintech products within the last six months. Canadian consumers' use of fintech is lagging behind consumers in other countries, however. Our 8.2 percent compared to 15.5 percent globally.One reason more Canadians aren't utilizing fintech is that, at present, traditional financial institutions often restrict or prevent consumers from sharing their data with third parties. Restrictions in customer account agreements, for example, make clear consumers are violating the terms and conditions set forth by their bank by connecting their accounts to third parties. Canadian financial institutions also offer minimal technological solutions to facilitate the sharing of information.Finance Canada soon could provide relief. Last month, the Department released a consultation paper on Open Banking, and this month it held public consultations in which the Financial Data and Technology Association participated. Those discussions made it clear the federal government must lead, and with haste.The first critical step toward Open Banking is the assertion of the customer's legal right to their data. Many Canadians currently take paper statements and financial information to their advisors and accountants. Open Banking is the digitized version of bringing a shoebox filled with receipts and bank statements to service providers.Security principles must go hand with improved data sharing. As the internet has expanded and integrated in all spheres of our lives, security matters are no longer a choice, but a requirement.  To protect consumers, an Open Banking framework must require a third party to obtain explicit consent from a consumer, using disclosures in clear language that can be easily understood. Consumers also must be permitted to opt out of using a service – and of sharing their data – at any time. Third parties should make clear to consumers that they have the right to revoke consent, but also that doing so will prevent the third party from continuing to offer services and prevent unintended consequences.A well-regulated Open Banking regime built upon these principles would:
  • support financial inclusion by reducing the number of Canadians who are currently underbanked or entirely left out of the banking system;
  • provide to the consumer or small business full control over their financial data;
  • reduce costs and burdens associated with switching financial service providers; and,
  • spur innovation and create new consumer services and result in lower fees due to new competition in the market.
In addition to these benefits, Open Banking will create both high and low skilled jobs and strengthen Canada's economy. The digital economy is a substantial driver of global growth.  According to McKinsey, the internet has generated as much economic growth in the past 15 years as the Industrial Revolution did in 50 years. The efficiency and productivity gains realized from increased digital usage will accrue to all segments of our modern economy.Open Banking implementations is underway in many countries, from Australia to India to the United States. In these markets, the technology-powered products and services provided by incumbent financial services and fintech firms are supporting consumers and businesses as they manage and improve their finances.Canadian consumers should demand the same opportunity.Steve Boms is a member of the board of directors of the Financial Data and Technology Association, which played a pivotal role in crafting the design and implementation of open banking standards in the United Kingdom and Europe, and is executive director of the organization's North American chapter.