Open banking has the potential to transform the relationship between consumers and service providers, and fuel a powerful wave of innovation in finance. But while it revolutionizes finance in other global markets, progress is slower in Canada.
That may change soon, following a report published earlier this year by the Senate of Canada that moved the conversation forward and strongly urged the federal government to swiftly implement open banking regulations.
We sat down with one of the architects of that report, seasoned entrepreneur and independent Senator Colin Deacon, to talk about the merits of open banking, the end of digital serfdom and the cultural shift banks must make to become globally competitive.
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No time? No worries! Read our 4 key takeaways from the conversation
- What the heck is open banking?
Many Canadians don’t actually understand what open banking means. It’s not about bank opening times. Nor is it about personal financial data being made public. In fact, it’s the opposite – open banking means customer-directed banking.
- Open banking is already here, we should talk about that
Millions of Canadians are already using financial technology (fintech) apps and services that require a connection to their bank accounts, despite Canada not yet implementing an official open banking framework. This rapidly growing market demand, both from consumers and businesses, requires an equally rapid regulatory response.
- Disrupt or be disrupted
Canadian banks are trusted around the world. Our major banks can leverage that reputation to thrive on the world stage. But competing globally requires a different approach. Instead of trying to protect themselves from disruption, they need to become the disruptors and work with, not against, fintechs.
- The end of digital serfdom?
Canadian customer data is parsed, monetised and bartered by corporations around the clock. Traditional banks have a monopoly on Canadians’ financial data and Silicon Valley behemoths control internet activity data. Open banking gives Canadians the opportunity to reclaim sovereignty over their data and re-invest it into what matters to them.
Here are a few highlights from our conversation.
On open banking’s branding issue
Dominique Samson: There’s a lack of awareness in the general public with regard to open banking. Do you think people should be more aware?
Colin Deacon: There’s a real branding issue here. Open banking: The moment I start using that term, people think it’s about banking hours or all their data being out in public. And it’s not either of those.
On the cultural shift Canadian banks need to make
Colin Deacon: In the startup world, it’s all about the problem you solve. It’s not about the technology you’re delivering, it's about the solution to a problem that you're solving for somebody. It's up to the company to find those problems, and find the people with those problems and to solve them reliably. That's the startup world.
We don't have that culture in our banking system right now. Our banking system is a one size fits all and for the most part its a system that has got a tremendous track record of stability. But around us the world is digitizing.
That cultural shift to move our banks from more of a moat strategy – where they're protecting their markets, where they are very concerned about incrementalism, where they're very hierarchical structures and making changes as takes a long time – to more of a start-up culture, which is what's breeding all this disruptive innovation, is a really tough cultural change. I'm concerned that they will not manage fast enough for their own benefit and for the benefit of their shareholders.
"This is a world where you disrupt, or you get disrupted."
That's the reality. I don't care what industry you're in, I don't care what you do. But that's the reality you’ve got to manage. Our banks culturally are still in the position of trying to protect themselves from this disruption.
On open banking’s benefit to traditional banks
Colin Deacon: I'm a big believer that the move to digital banking is a can be a tremendous boon for Canadian big banks. I think it will allow them to become part of very large ecosystems that are global, not national. And that rather than acquiring banks, they can be building out partnerships and subsidiaries and other groups that are offering financial services all over the world.
"Canada is a very trusted brand, our banks are very trusted banks. Let's lever that to become the global player in digital banking in the next 20 years."
On putting consumers in control of their data, through open banking and beyond
Colin Deacon: A concern I have is that Canada is looking at privacy, legislatively, like a risk to be managed. It's only about protecting yourself on the downside.
"I look at privacy and consent going forward as a huge opportunity to enable Canadians to control their data and invest their data as an asset."
That's what the consumer data rights legislation is trying to unlock in Australia. It came out of the Australia Productivity Commission. That's who drove this legislative priority towards open banking — looking at how we become a more productive economy.
We have to look at the ways that we can give consumers more control over their data. That is an essential element to be successful in the financial technology world. As consumers can control their data and say 'Yes, you can these data for this period of time, for these purposes', and then get them back — the right to be forgotten — that changes the business model, it changes the business dynamic and it changes the services that can be available.
"It changes the whole monetary relationship between the consumer and their provider."
Now, instead of this world of digital serfdom and digital slavery which we're in right now, where the Canadian banks basically control all of our financial data, where Google and Facebook and others control all of our activity on the internet ... that whole trail that's being created, minute by minute, hour by hour, day by day is controlled by others.
I think there is a huge opportunity for us to start to disrupt major global players like Facebook, Google and others by having legislation that says no, actually, Canadians are in control of their data.
Consumers controlling the data stream that comes off of the minute by minute (…) has tremendous implications in terms of opening up a more democratic and more market oriented, more innovative world moving forward.
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