In next month’s federal budget, the feds are poised to put forward a framework legislation to bring open banking to the financial system. What is that, exactly? We’re glad you asked.
Driving the news: Open banking is a system that lets users decide how their financial data is shared. Under the framework, banks would share a customer’s financial data with third parties, like fintech apps, via APIs — aka, the things that let you simply click “log in with Google” when you’re making a new account on a website you’ve never used.
Why it matters: If you’re one of the ~9 million Canadians using fintech apps, you’re likely forking over your banking login credentials to let the apps collect your financial records. Not only is this practice dubious for security reasons, it likely voids your electronic banking warranty.
- Open banking would create rules for obtaining client permission and how data is to be shared without voiding warranties, making it easier and safer to use fintech apps.
- The newfound ease of sharing could give rise to new products which let users see all of their financial info — be it investments, loans, or transactions — all in one place.
Plus: If you don’t use any new-fangled fintech app, open banking could still impact your banking. Advocates argue it will generate more competition in the infamously uncompetitive banking sector by empowering smaller competitors and making it easier to switch banks.
Yes, but: Countries that have introduced open banking recently, like the U.K. and Australia, have seen low usage rates. In Canada, 80% of bank account holders have never switched accounts. Making it slightly easier might not be enough to counteract this lethargy.—QH