Canada’s financial regulations buoy the banking sector in challenging times but have posed challenges to digital transformation. As the government prepares for an open banking framework, however, its banks are in a great position to lay the foundation for new transformation journeys.
In 2019, Canada’s Senate Committee on Banking, Trade and Commerce called for the creation of an open banking framework. As a result, Open Banking Initiative Canada (OBIC) is collaborating with experts from banks, fintechs and regulatory agencies to develop an ecosystem suited for the nation’s citizens and economy.
Shashi Prabhu, Toronto-based financial services consultant at Publicis Sapient, said banks that build out the foundational capabilities for digital transformation will be able to differentiate themselves domestically and around the world. These foundational capabilities could help achieve “speed” (e.g., agile ways of working, value-driven product mindset, CI/CD pipeline), improve “business agility” (e.g., composable architecture, cloud-native design, purposeful fintech integration), and innovate by truly leveraging data-as-an-asset (e.g., single version of truth, data security and privacy, AI and analytics).
While the legacy infrastructure that banks use is not quite conducive to building out capabilities that are fundamental to modern digital transformation, the thinking amongst the Canadian banks seems to be developing these capabilities by way of creating new services, or extending domestic services to newer markets (i.e., outside Canada). Such trends can be seen in wealth management, trade finance, corporate banking and commercial banking, as examples.
Open banking, a system that allows third-party access to consumer financial data through application program interfaces (APIs), will be a major source of modernization and creativity, as well as disruption and competition. It is poised to restructure the financial landscape and user experience in Canada. In a regulatory-driven environment, a significant emphasis is likely to be on developing thinking around API standards, API management and ensuring data security and privacy requirements are well thought out.
Although incumbent banks will need to compete with digital startups to provide better services and lower costs, they can also improve their own prospects by taking advantage of aggregated data across various institutions and platforms. By mastering analytics, banks can use this data exhaust to determine the right times to consult with clients and what topics to cover. They can also determine which products might resonate with prospective customers at different stages of life. Advisers will be able to spend more time evaluating scenarios and less time filling out forms or handling administrative tasks.
According to Surbhi Dhir, a Publicis Sapient senior client partner based in Toronto, "The digital revolution forced financial institutions to innovate and improve customer engagement. Open banking will disrupt the financial services industry and open up opportunities for fintechs to be money managers."
Moody’s, the credit-rating agency, has said that Canadian banks are the safest in the world. These are all good things. Canada’s regulations are helping the financial sector. But by harnessing the power of open banking, Canadian banks can add new layers of innovation and customer service to this security.
Canadians can also take pride in being at the forefront of data privacy and security, in part thanks to the Personal Information Protection and Electronic Documents Act (PIPEDA), which regulates how businesses in the private sector may collect, disclose and use personal information.
Open banking could bolster the Canadian financial sector’s already strong security apparatus by using these newly accessible data sets to identify and prevent traditional threats.
According to Prabhu, in a matter of a few years open banking will be well established in Canada like it already is in the United Kingdom. Once the dust has settled, the Canadian public will enjoy a slew of new products and services. Greater financial transparency, open-source technology and open APIs will change the marketplace, quickly.