The 2019 Canadian Banks publication has officially been released and with it comes the future of the banking industry. This year is all about digitalization and modernizing the world of banking. With new innovative technologies being introduced regularly, customers expect their banking needs to stay current with new trends. Competition is high and numerous technology industries are taking their chance into the financial industry. Therefore, it’s now more important than ever for banks to step up their game if they want to stay in the competition.
The open banking concept has already been in play for quite some time in other countries, so Canada is behind. However, seeing as how this new concept has completely revolutionized the banking industry in other countries, we should be expecting open banking to be introduced to Canada very soon. In its 2018 budget, the Canadian government announced that open banking could very well be coming to Canada as early as 2019. In this article, we will be exploring the five major aspects of the 2019 Canadian Banks publication which fully explains the concept of open banking and what this would represent for Canadians.
1. A brief introduction to open banking
In summary, the concept of open banking is based on linking internal bank customer data and processes with other parties through digital channels. From a better use of banking services such as account combinations and an easier way of customer identification to delivering products and services to resolve customer issues, open banking is creating a world of possibilities when it comes to the enhancement of financial services and providing a better customer experience. While most of the ideas of open banking are not new, it’s only been recently that policy-makers have started working on regulations to find a solution on these long-term issues. Open banking is basically what is intended to be a solution to the challenges that customers face when it comes to their banking needs. It’s designed to give clients a better customer experience so they can get all their banking needs done without facing challenges and struggles. Open banking no longer limits customers to certain tasks; it’s intended to give them more control so they can get on with their daily tasks.
2. Open banking for customers
Open banking represents a world of possibilities to customers. It not only gives them a bigger control when it comes to doing their banking, but it’s also creating more opportunities for them. Open banking focuses on three key aspects when it comes to customer experience:
➢ Open Data:
Through the use of Application Programming Interfaces (API), customers can provide third parties a full view of their accounts. They have the power to choose what they want to
Share and with whom. This gives them to opportunity to seek financial advice elsewhere or can benefit them in other situations where they would need to share certain banking information with other parties. API has been developed securely to avoid risk or security breaches. Therefore, customers can share their banking information to their parties with complete ease of mind that it’s safe and secure.
➢ Open Process:
Still through the API process, clients are able to authorize a third-party payments management platform to initiate payments on their behalf. No longer having to go through the process of wiring funds or bill payments that are not set in real time, the open process aspect gives full authorization for clients to allow third-parties to take payments directly from their account to pay any bills that are due. Customers won’t have to worry about missing payments or due dates.
➢ Open Products:
With the constant competition between banks, it’s very common for customers to switch banks from time to time to suit their financial needs. The open product aspect allows customers to switch banks without going through the hassle of being present at both banks to sign papers and such. With open products, customers can move from one bank to another without ever having to step foot inside either banks. Their accounts from their previous bank will be closed and reopened in their new bank. Funds will also be transferred electronically. This will save time and provide a better customer experience.
3. Open banking inspires a more competitive and innovative financial ecosystem
Open banking’s mission is to create a competitive and innovative financial ecosystem. Technology plays a major part in all industries therefore it’s no surprise that it’s at the center of open banking. Several big technology companies have been working round the clock to come up with solutions that could benefit customers and banks. This is why open banking was created. To encourage a competitive and innovative banking industry. With constant new discoveries in the tech world, customers have come to expect the same when it comes to their banking needs. Several technology companies have already stepped in the financial industry; therefore, open banking will give them the possibility to take things to the next level. If banks were to initiate open banking in their systems, this would definitely make them the front runner. This will benefit them in several areas that can help them grow even bigger:
➢ Opportunities of partnerships and acquisitions of SMEs through their innovations
➢ A clearer picture of their customers lives through shared data
➢ Development of new products and services for a better customer experience
4. The impact of open banking on all involved parties
Since banks are already trusted by customers, if they put in place an open banking system, they have stronger chances of becoming the front runners. This is also great for small and mid-sized banks since it will give them the opportunity to grow by gaining new customers. This gives them the possibility to not only attract new customers, but also reach new markets. Banks do need to ensure to have their data properly set-up so that they can make their information accessible upon request. While some banks might find the fact of sharing data uncomfortable, it’s essential for them to consider all the benefits this will create for them. Another great aspect of open data for banks is that through shared data, they will be able to stop and irregularities that could be potential fraud or money laundering.
Open banking represents a world of possibilities to customers. It gives them the flexibility and control of their banking products to make their lives easier. Not only is it making their banking services more innovative, but it’s also giving them an overall better customer experience. For starters, open banking can speed up credit processing for retail customers. For business owners, it can improve their credit process by allowing third parties to see the history of their banking such as cashflows which could ultimately help them get the right financing. Open banking opens a door of possibilities and opportunities for those who will take advantage it. However, it’s important that customer who decides to share their banking data with third parties that they give their full consent and are confident that their bank has a full security process that will protect their banking information.
Open banking can create significant opportunities for FinTechs. Through shared data, they can create innovative products such as platforms where customers can compare their different banking products to get a better customer experience. One of the best opportunities open banking brings to FinTechs is the possibility of a partnership with banks. By partnering up with banks to create platforms and programs that are beneficial for all involved parties, FinTechs will be opening themselves to a new market space. This will give them the possibility to have access to new networks and potential clients.
Regulators play one of the most crucial roles in the open banking process. They are the ones who will decide which organizations can participate in open banking. This includes the decision of which banks can use the API system that gives access to shared data. They will also need to consider which rules to put in place when it comes to customers giving consent to sharing their data. Ensuring that open banking is done securely to avoid any risks that can jeopardize any of the parties involved, regulators need to thoroughly investigate and consider all aspects prior to making their decision on who will be able to use open banking.
5. Security & Privacy
Although there are many benefits of using open banking, it does come with its share of risks. Customers are putting their trust into their banks that could very well have an open banking relationship with a third party. There’s always a possibility of having that third party experience a privacy breach which could ultimately give access of all their banking information to criminal organizations. This is one of the biggest concerns and risks of open banking. However, banks are more likely to have all the proper security measures in place to give them the opportunity of using open banking. They will however need to reinforce their security measures and ensure that the third parties in which they will be using open banking with will have the same security measures in place. Through enhanced certification processes, fraud management controls and cyber protections, banks will be able to confirm that all aspects of data security and privacy are covered. This will allow them to make a clear confident decision on which they will be using open banking with.
There are many benefits to open banking and it will bring the financing industry more innovative with current technology trends. However, with open banking comes a wave of new concerns about risks and security breaches. While open banking can open the door to several new opportunities for banks, it’s important that they ensure to increase their security measures to avoid any potential risks for themselves and their clients.