Open Banking: what’s really at stake – by Richard Remillard

Open Banking: what’s really at stake – by Richard Remillard

A National Project

Open banking has many definitions and multiple characteristics. At its core though is the concept of empowerment – the empowerment of financial consumers, individuals and businesses alike, that comes from transferring control over financial information to clients away from established financial institutions.

Because of this potential which promises to democratize financial transactions, much has been said about open banking in recent years. And, insofar as Canada is concerned, all that talk misses the point.

Properly considered, open banking is the national project for the 21st century digital, mobile, connected economy.

The only real question is: can Canada build such a national project when it is having such difficulty getting national projects for the 20th century economy off the ground, out of the ground and out to market?

Think pipelines.

Causes for Concern

Already, there are worrisome signs.

First, we are behind other jurisdictions such as Great Britain and Australia and there are indications that other countries will soon follow suit. Just as the US has moved smartly to develop and sell its vast reserves of shale oil while Canada’s product remains landlocked so too we risk being leapfrogged by the likes of an Estonia on the open banking side.

Second, governments are engaged in full consultation mode and the policy commentariat ranging from the CD Howe Institute to Canada 2020 have been cranking out papers and hosting events on open banking at a rapid rate. The federal government has set up an advisory council following the 2018 budget while other federal departments and agencies from the Bank of Canada to the Competition Bureau have already been pondering the issue. However, the general public remains outside the discourse which to-date has been confined to the chattering classes.

Third, one key interest group is claiming territorial jurisdiction, namely established financial institutions. Just as First Nations have demanded that they be fully brought in to the pipeline approval process, so too have the chartered banks weighed in with admonitions to proceed with all due haste – but, slowly, very slowly. Not wanting to be seen as anti-innovation and anti-consumer choice but also wanting to protect their fat margins that are derived from maintaining the status quo.

Fourth, Canada’s record on financial innovation is not stellar. Capital has been flowing into fintech startups but there is nothing to suggest that Canada is at the global forefront of financial innovation adoption. These days, observers point to countries as diverse as Kenya and Singapore when looking to fintech leadership. And, then there’s China and the US each with a host of flagship firms and fintechs, often bundled together in novel ways.

Fifth, part of the problem with pipelines as with open banking is the never ending federal-provincial jurisdictional turf battle. We can’t seem to get a national securities commission (another pipeline project that’s thoroughly gummed up) which does not appear to be a priority for anyone any more. For open banking to be truly comprehensive would likely require a level of federal-provincial cooperation that has not been much in evidence lately.

A 2019 fearless forecast: no open banking, any time soon and certainly not in 2019. For Canada to participate in this financial innovation bold leadership will be required from committed participants unafraid to shake up the established order to bring about the birth of a new way of doing things.

Creating the Winning Conditions

Left to its own devices, the policy process today would likely grind out a classic Canadian compromise of the kind that we excel in producing, much like promoting both environmental protection and a resources based economy. However, in the realm of open banking, allowing things to unfold as they usually do will probably lead to a middle-ofthe-road that really doesn’t position Canada for leadership in financial services innovation.

The main challenge facing proponents of open banking today is to identify and then proceed to implement the winning conditions that will be necessary to overcome regulatory and bureaucratic inertia.

Some of those winning conditions would include:
• Developing a public engagement strategy in order to build the necessary bodyguard of support in key segments of society, including interest groups, elected officials and the general population;
• Focusing on a limited number of key communications messages that would address the tangible benefits of open banking, as well as the opportunity costs of not proceeding down this path, to individuals and businesses; these messages would likely centre on control, choice, trust and security;
• Taking advantage of the plethora of media opportunities that exist today to keep broadcasting out easily communicable messages and to respond to the no go/go slow squadrons that are now mobilizing.

Richard Remillard
President, Remillard Consulting Group
NCFA Board Member

This article was originally published in Inaugural NCFA Pop-up Magazine.

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