Stagnation is one of the worst scenarios any country can face. Politicians and businesses must accept potential risks and embrace new technologies, such as Open Banking.
In Canada, flying the flag for Open Banking is the Council of Canadian Innovators (CCI), which recently launched a campaign calling on the federal government to emulate other Western nations and push forward with Open Banking adoption.
Explaining CCI’s message and its confidence in Open Banking to Payment Expert, the organisation’s Director of Federal Affairs, Nick Schiavo, asserted that Canadian fintechs ‘fundamentally believe in Open Banking and open finance, because it will drive competition and innovation’.
“There is a huge benefit to Canadian businesses,” he said. “They stand to benefit a lot from Open Banking and open finance, as they currently experience CAD$3b-CAD$6.5bn in operating costs for payment processing. Anything to modernise this experience creates greater choice, and helps with transfer of wealth and financial data portability.”
Open Banking is one of the big talking points in global fintech. Accelerating the development of the financial service has been endorsed in the UK, for example, by a recent government-commissioned review of the country’s payments network.
Meanwhile, the EU – particularly the Nordic states – and the US have also made inroads in Open Banking adoption. Schiavo and CCI believe it is about time the same developments are mirrored in Canada.
This would have huge benefits for both businesses and consumers in the country, he explains, due to offering more choice, which could in turn help address the fact that around 3% of Canadians are unbanked and 15% are underbanked.
“There is a need for more choice for financial services, particularly those who don’t have access and here are a number of products that could be implemented,” he continues.
“Some products cannot work to their full potential because there isn’t an Open Banking regulatory framework that allows for them. It can save people money and help combat the cost of living crisis that we are facing here in Canada, particularly on housing.”
Canada has plenty of examples to look to when it comes to Open Banking adoption. As well as reiterating the US and EU, the UK is also a jurisdiction that has interwoven financial services into its economy.Onboarding lessons from these countries and adopting them for a Canadian approach will be key to the country’s adoption of Open Banking.
Take the UK, for example. Last month, a review was published into the country’s payments sector, concluding that Open Banking development and adoption needs to be accelerated with government support.
Similar to Schiavo’s observations about Canada, the Future of Payments Review identified Open Banking as posing potential for boosting the UK economy, and that the country should not get left behind.
“Our main message is that we want a made-in-Canada approach,” Schiavo continued. “Let’s look to other jurisdictions and see what works well, but ultimately let’s create a system that works for Canadian fintechs, that works for Canadians, and if there are ideas that we can adopt from other jurisdictions.
“In terms of regulation and governance, it’s important that there is an arm’s length independent regulator so that there is fairness and so competition and innovation can flourish.
“I think the worst case scenario would be to have a utility that’s owned by the big banks – like Akyoa in the US or Symcor here in Canada – regulating this system, because ultimately we’re not going to see the competition and the innovation that I think all of us want.”
It is ‘no secret’ that Canada has a problem with productivity, Schiavo remarked, and Open Banking will play a key role in addressing this challenge, again by fostering innovation and giving people more choice.
Like many Western nations, SMEs also play a huge role in the Canadian economy, but as in other countries these businesses face regulatory challenges and perhaps most significantly the struggles of rising costs.
CCI hopes that Open Banking could provide these SMEs with the boost to growth both they and the Canadian economy desperately needs. That is not to say everyone is on board, however, as Schiavo notes that there is a culture of risk aversion.
Canadian policymakers, business people and consumers need to recognise the risks of stagnation, he argues, and recognise that financial stability and security can exist alongside an economy driven by competition and financial innovation.
“There’s an idea that by introducing Open Banking we will make the financial system less stable, I think this is a fallacy,” he asserts.
Change may be on the horizon for Canada’s fintechs, however, as the government seems to be becoming more accepting of Open Banking. Schiavo shared his view that the Liberal administration is ‘ well-intentioned and has contributed a lot to innovation policy’.
However, speed is rarely the strong point of any government. Canadian businesses were told that Open Banking regulation could be expected in January 2023, that deadline has been and gone and has been pushed back by ‘at least two years’.
In the meantime, the EU, UK and US have been moving forward with Open Banking regulation and development, and Canada needs to make sure it is keeping pace with these jurisdictions.
The Fall Economic Statement (FES) published last month has given CCI and Open Banking proponents some hope, containing as Schiavo put it ‘a number of wins for Canadian Open Banking, a number of wins for payments modernisation’.
“I’m pleased to say that our advocacy over the last four, five years has really paid off,” he said, citing that the FES saw a ‘very clear, firm commitment from the government to move forward with open finance’.
Stakeholders can expect two timelines for this. Firstly, the government has committed to introducing legislation around Open Banking in Spring 2024, and that a framework can be expected to be up and running by 2025 – some in the fintech sector are confident launch will occur in Q1 2025.
“All that suggests a major win in the Fall Economic Statement I think for fintechs but also for Canadians who are looking for other options and looking to save money,” Schiavo concluded.
The main warning Canadian policymakers, fintechs and other stakeholders should have, in Schiavo and CCI’s view, is that with the rest of the world moving forward, the biggest threat to the Canadian economy is standing still.
