Ways banks can begin preparing now for increased competition and enhanced opportunities as new standards for data-sharing impact financial services sector
As the Canadian government releases its highly anticipated final report from the Advisory Committee on Open Banking, Canadian banks are making plans now for the ways the new rules around consumer data-sharing will impact them. Focused on security, transparency and mobility, the new regulatory framework set to take effect in 2023 empowers Canadian consumers to have more control over their financial lives. “The report recommends that customers be allowed to authorize the movement of their own data and compel the banks to provide access to their account information, including chequing accounts and mortgages,” according to Financial Post reporting on open banking.
Without consistent and rigorous standards, financial services companies currently use the insecure practice of “screen-scraping” to access customer banking information to process transactions or make credit and lending decisions. While open banking will undoubtedly increase competition on Canadian financial institutions from outside challengers like fintechs, there are advantages banks can leverage now. “People trust banks; these financial institutions have been keeping money safe for centuries,” according to Forbes’ article on what business leaders need to know. “[Consumers] know that to open a bank account, a lot of information is shared… The bank checks the data, keeps it safe and acts as a reliable entity for sensitive information.”
Further, new standards extend beyond parochial definitions of banking. “Despite that focus, open banking has widespread implications for small businesses and corporate finance, as more businesses demand enhanced user experiences and deeper data integrations,” according to PYMTS.com industry updates. “Open banking can also be applied to other services like loan underwriting, which would similarly impact the business community.” For smaller and mid-sized banks and credit unions, opportunities to reach new customers will be at an all-time high as they access once proprietary data information from other financial institutions.
“Canadian banks can have a first-mover advantage given they’re already trusted custodians of customer data with strong brands,” according to PwC analysis of open banking impacts on Canada’s financial landscape. “Successful banks will have a number of characteristics, such as a customer-centered focus aimed at creating personalized solutions to win the hearts and minds of their customers.” To prepare for what’s to come, banks and credit unions should begin implementing data strategies and analytics approaches to develop best-in-class products and services; investigate potential partnerships “beyond what the regulations require” that can expand on open banking opportunities; and make investments into both technology and valuable consultations that drive trust.