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We don’t yet have open banking in Canada, but here’s how it could work, and how it could make using fintech services safer and easier.
Open banking is a system that allows people to securely share banking information online with fintech companies and financial institutions. The U.K., Australia, Singapore and a few other countries have introduced open banking, but Canada hasn’t yet. In 2021, an advisory committee submitted a report to the finance minister with recommendations on how to go forward. In November 2023, the Canadian government announced as part of its 2023 Fall Economic Statement that it will introduce framework legislation for “consumer-driven banking,” a.k.a. open banking, in its 2024 budget.
Let’s say you have an account at a traditional bank and you want to open another one at a fintech, with the ability to transfer your money between the two accounts. Without open banking, some fintechs require you to input your bank account username and password. They capture this information so that they can access your bank account as if they were you. This is known as “screen scraping,” and it poses significant risks.
Sharing your login credentials grants the fintech access to all your banking data—including transactions, account balances and more—not just the data it needs. Check the fine print: You may be violating your banking agreement by providing login details to a third party. And, according to the Financial Consumer Agency of Canada (FCAC), “If you provide your online banking username and password to another party, such as a fintech app, you may risk losing the protection your bank offers against unauthorized transactions. This means you might be held responsible for any losses resulting from unauthorized transactions or for any changes to your financial products and services. You may be liable even if the app has security measures in place, or if it is the cause of the loss.”
Note that Interac e-Transfers do not use screen scraping. They’re backed by the same security measures as traditional banking transactions. Only the notification and deposit instructions are transmitted by text or email.
Open banking encourages innovation by making it safer and easier for clients to do business with fintechs. Advantages include:
Small businesses also benefit. For instance, after open banking was introduced in the U.K., businesses reduced late payments from customers by using open banking-based services that generate automated invoices. They also enjoyed greater visibility of their own financial information with cloud accounting and better, faster access to alternative lenders when they needed extra capital.
Example: “A 2022 study by the Financial Consumer Agency of Canada found that 52% of people surveyed incorrectly believed open banking exists in Canada today. Only 18% were aware that fintechs do not currently provide the same level of security as banks.”
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