Have you heard of the term open banking? Even if you haven’t heard of it, if you have a smartphone with any financial apps on it, open banking will benefit you. Without knowing it, you’ve likely wished that it was already a thing in Canada.
So, what is open banking?
It’s a system that would allow you to share your financial data securely. It creates opportunities to share data with service providers beyond your bank. The goal of open banking is to create a safer way to share data. It also opens up opportunities for innovation with new financial tools.
Isn’t open banking already a thing?
Reading about open banking might be a little confusing because you’re already using apps or programs that use financial data from your bank. You might be thinking, “Isn’t that open banking?” What we’re using right now has a similar end result to open banking, sharing financial data; however, it’s actually different. What we have now is screen scraping.
What is screen scraping?
Screen scraping is when outside apps log in to your bank account on your behalf. Typically, you log in to your online banking through the external app or software. The provider “scrapes” or copies data from your bank’s website. They do this by mimicking your activity to pull data about your accounts. We currently see this process used for a variety of applications, and millions of Canadians use it, often without even knowing. If the idea of your data being copied without you knowing sounds risky to you, you’re right.
Why is it risky?
The risk comes in when screen scraping is used by a third-party app, like a budgeting tool, to log into your bank or financial institution. This process could actually cause you to lose protections from your bank. You know those terms and conditions we all check off and never actually read? Generally, banks have rules about sharing login details in those terms. If fraud occurs, they may argue they are not liable if login details were shared with third parties. It also increases exposure to fraud and mismanagement.
It’s these risks that have inspired the Government of Canada and the Bank of Canada to move away from screen scraping to open banking, which is much safer and offers much greater flexibility.
How open banking is different
Open banking involves using Application Programming Interfaces (APIs), a technology that supports data sharing between applications. An API is an interface that accepts data inputs, which it uses to produce data outputs that only the intended receiver can understand. Think of APIS as kind of like a translator between two people who don’t speak the same language, but for your financial data.
Using an API, open banking will let you share account information from different sources. Picture all your financial data in one spot. That could mean information from your chequing accounts, savings accounts, and registered accounts in the same app. It opens so many opportunities for financial innovations and creates a safer experience when managing your financial health. It could also simplify the steps of applying for a credit card, mortgage or the process to open a bank account online.
The possibilities are endless, but here’s one real-life example:
Imagine you’re applying for a mortgage. Instead of printing months of statements or sending PDFs, you could allow your bank data to be shared directly with the mortgage app. In seconds, they’d see your balances and income history without you uploading a thing. Hours and hours saved by you and your mortgage professional!
Open banking, a step-by-step
Consumers using financial technology apps choose to connect their bank accounts to external apps. These could be anything from a single financial service, like a budgeting app or even a broader tool that looks at your full financial health.
- They authorize data sharing, including specifics on what data to share. Examples are account balances, transaction history, or pre-authorized debit schedules. This removes the need to share login credentials.
- The financial institution sends data through the API to the selected service provider.
- The whole system is structured around accreditation, liability, and technical standards that are governed by a hybrid model. The federal government defines the frameworks. The financial institutions, banks, and fintechs collaborate on corporate governance.
Open banking in Canada
The Government of Canada is working to implement the Consumer-Driven Banking Framework. It was introduced in Budget 2024, creating a clear plan for secure, API-based data sharing.
Legislation: The Consumer-Driven Banking Act, passed in mid-2024, creates the groundwork for the rollout of open banking in Canada. Oversight will be by the Financial Consumer Agency of Canada.
Timeline: Rollout would happen in phases. The first phase is expected to happen in early 2026.
Market context: The big banks currently hold the majority of banking assets. Open banking could level the playing field and increase competition. Small and mid-size banks and fintechs stand to benefit most. Right now, these smaller players can’t compete with the size and market share the big banks have. The simplicity it offers also makes it really easy to make changes to your accounts. Making people more likely to make changes that will benefit their finances rather than just staying the course with what they already have.
Security focus: Moving from screen scraping to API-driven access aims to make your data more secure. The focus is on reducing fraud, protecting credentials, and giving consumers better control.
Open banking around the world
Several countries have already implemented open banking, setting precedents for Canada.
- Australia launched its framework under the Consumer Data Right in mid-2020. It lets consumers securely share accounts, bank accounts, and financial data through APIs.
- Nigeria followed with open banking regulations and guidelines beginning in 2021–2023.
- The UK adopted open banking in 2018. It now supports a thriving ecosystem of fintech and financial services. It has opened up the ability for account aggregation and secure data access.
Other countries have shown that once open banking takes off, people quickly get used to the new tools. Budgeting apps, faster loan approvals, and easier account switching quickly became the norm. We have the advantage of learning from these rollouts.
Wrap up
Open banking will reshape retail banking services. It opens up doors to better safety of our financial data. It increases competition in the banking sector, leading to a broader range of financial products. Add in the potential of lower fees and higher interest rates on savings, and it’s a win-win.
Until open banking becomes available here, be cautious when sharing your data. Consider using security features like 2-factor authentication, which can help reduce the risks. I know it adds extra steps, but they are well worth it to keep you as safe as possible until open banking is here!
