Siddhi Bagwe
Nora Dunn
Beth Buczynski
Have you ever wished you could see your full financial picture across institutions and accounts, without compromising your privacy? Open banking may be the solution you’re looking for.
Open banking is a regulatory framework that may enable Canadians to safely manage their finances, streamline applications for new bank accounts and loans, automate transactions, and operate businesses more efficiently.
While open banking has been implemented in other countries, it is not yet available in Canada.
What does ‘open banking’ mean?
Open banking is a regulatory framework that allows for the safe transmission of financial information, such as account and transaction data, between institutions and to authorized third parties. Open banking is also known as consumer-directed banking or consumer-driven banking.
Experts say this framework will create more opportunities for financial technology companies, or “fintechs,” to develop products and services that help Canadians manage and improve their finances.
Although open banking isn’t yet available in Canada, countries like the United Kingdom and Australia have already implemented it to streamline financial data transfer between fintechs and banks while maintaining users’ security and privacy.
Why it’s important to talk about open banking
If you use financial apps or websites to manage your bills, invest in the stock market or cryptocurrencies, or track your budget, you likely have to share your account information with these fintechs to link your accounts.
But when you share your banking username and passwords you enable a process called “screen scraping.” Fintechs use your credentials and screen scraping to log into your account and collect transaction records on your behalf.
This practice is not only a privacy and security risk — you can’t control how the fintech stores or uses this information in the future — but it may also violate your bank’s electronic access agreement (EAA). As a result, your bank may refuse to protect you and hold you liable if an unauthorised transaction takes place.
Despite these risks, about nine million Canadians currently use screen scraping to enable third-party programs to access their individual transaction records and other financial information. The growing use of these apps and tools has highlighted the need for a regulated framework like open banking.
How open banking works
In countries that have already implemented open banking, individuals can authorize their bank to share financial data with third-party apps and websites through secured channels. Unlike the screen scraping process, open banking safeguards personal information and protects consumers from liability.
Once open banking is implemented, proponents argue that more opportunities will be created through competition among fintech apps and services, empowering Canadians to manage their finances securely and more effectively.
Benefits of open banking
Although not yet available in Canada, many are looking forward to its potential benefits, which may include:
Account aggregation
View bank accounts, investments, credit card balances, loans and more in one place — giving you a complete picture of your finances in a single app or tool.
Faster loan and credit application processing
Lenders will be able to see your financial information and credit history in real time, helping them speed up the loan and credit application process.
Comparison shopping
Comparison sites for loans and credit cards will aid you in finding the best product for your needs and seeing at a glance whether you’re likely to qualify before you apply.
Personalized budgeting and financial management tools
New regulated third party apps and tools will be developed to help customize your budget and finances. For example, an app may read your financial transactions and based on when your income is deposited and your spending habits, it may be able create and adjust automatic payment dates. It might also estimate your available funds each month.
Faster electronic funds transfer (EFT) processing
Account-to-account transfers will be verified faster, improving the payment experience for consumers and businesses.
Establishment of creditworthiness
With open banking, you could provide creditors with a more comprehensive picture of your financial situation to qualify for credit you wouldn’t otherwise have access to. It could also help gig workers and side hustlers, who might not have traditional employment income, to qualify for loans.
Open banking security risks
Open banking entails a network of linked apps and programs that is only as secure as its weakest link.
For example, if you allow your bank to share your financial information with a third-party app that helps you manage your finances and that third-party app is hacked, your data could be compromised.
That said, the current system of screen scraping is also vulnerable to cybersecurity risks, and since it’s an unregulated system, consumers may be liable without recourse.
When will open banking be available in Canada?
Canada had a target date of January 2023 for open banking implementation. In the Fall Economic Statement released in November 2023, the Department of Finance said it’s working on a Canadian consumer-driven banking framework to be fully adopted and implemented by 2025. The framework legislation is slated to be introduced in Budget 2024.
It’s an extremely complex process to develop and regulate, requiring the participation of multiple institutions and levels of government. For example, banks fall under federal rules, whereas credit unions are provincially regulated.
Since the pandemic, many businesses had to pivot from physical transactions to virtual operations, they had to lean on the banks to develop digital solutions to fit their needs — underscoring the need for open banking. Furthermore, the Bank of Canada is also exploring how to implement a central bank digital currency (CBDC) in Canada.
Open banking frequently asked questions
The security of your personal information will be of utmost concern as Canada develops its open banking system. In the UK, before a third-party app is approved for open banking, it must undergo a thorough regulatory audit, and this audit must be repeated regularly for the app to maintain authorization.
Additional measures around data transparency, the consent process, multi-factor authentication and biometrics will ensure open banking in Canada is as safe as possible.
Not yet. Canada’s new goal is to adopt and implement the open banking or consumer-driven banking framework by 2025.
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