Open Banking in Canada; What are we missing?

Open Banking is a disruptive force in the financial services industry.  The concept that banks will need to work together to share customer data is both novel and ambitious. Various countries have enacted open banking with widely successful use cases. In Canada, we are working toward an initial phase of open banking with the design and implementation of the key pillars by the fall of 2023. As the various players work together (banks, credit unions, government, technology firms and standards bodies) to enable this concept, and as the industry demands faster, more wide spread action, there are two fundamental and foundational concepts we are missing in this endeavor.  Any discussion of the future and success of open banking should take into account the necessity of strong data protection legislation and alignment with digital ID schemes. Without these, open banking will still work, but we are setting ourselves up for greater difficulty. 

Open Banking in Context 

It is important to recognize that open banking is not a concept on an island.  To put open banking in context, it is part of the wider concept of open data.  For years people have been saying 'data is the new oil.'  With that proliferation of data creation, and data sharing comes the critical need for consumer and business regulation in this digital economy.  While we all love the convenience of streamlined digital processes, AI algorithms that suggest and auto fill our preferences, and simplicity of a connected ecosystem of platforms and apps, there is a lot of our personal data that is accessible for which we don't always have control over.  For data to be open and shareable, it also needs strong controls for both safeguarding our privacy, as well as ensuring security and usability. 

Data Rights is a Basic Right 

Inherent in any practical manifestation of open banking is the concept of data rights.  At our core, we have to be committed as a country to the belief that people have a universal human right to their data and the protection of that data.  This right must be codified in legislation and underpinned by strong privacy laws.  The European Union codified this in GDPR, while in Canada we have PIPIDA.  However, in the context of open banking, countries have gone even further. Australia's Consumer Data Right sets out limits on data sharing that are relevant to open banking, the EU enacted PSD2, and India deployed DEPA which is a framework for data portability initiatives in the country.  

For open banking to be truly successful, we need updated data privacy laws, specifically with reference to data portability.  Canada's current laws are antiquated compared to other countries.  There has been effort to make these changes in Bill C-11, however it was unsuccessful (which many argue was a good thing).  But the government needs to commit to getting this right; including harmonizing privacy laws across the country as well as striking the balance of protecting consumers without stifling innovation.  Without the proper data laws, open banking and beyond (I.e. open finance), is lacking it's foundation. 

Digital ID; The Enabler 

In order to implement opening banking, we need a way for banks to authenticate users. This is critical to ensuring the protection and safety of data portability and banks take an enormous responsibility for this.  There is an approach that can support this implementation, and one that Canada is surprisingly more ahead on than most realize; Digital ID.  Digital ID can be the enabler for open banking and data portability and with national standards and a strong framework we can establish the interoperability needed for an easier implementation.  

Digital ID is a "digital representation of a person that proves their identity allowing them to interact with organizations and access services easily and securely."(1). Digital ID has existed for a while, but what is needed is a national framework that mandates interoperability and standards to protect a secure digital identity ecosystem of multiple players. Government involvement is key as with anything (open banking included) it is all about consumer and business trust.  And while the Pan Canadian Trust Framework, and draft standards by the Digital Government Council is doing just that, there is still a ways to go as some provinces in Canada do not yet have a digital ID system, furthermore the standards are voluntary. (2) While open banking can (and does) exist without a national digital ID, without it the players will be required to establish their own system of authentication, leading to a more complicated implementation. 

Open Banking; a Function of the Open Data Economy 

The implementation of Open Banking will keep chugging along in Canada.  But we need to recognize the missing element of updated data laws, and the need for mandated Digital ID model as the elephants in the room. The government needs to step up to recognize they should go hand in hand as open banking is merely a function of a fundamental need rooted in an open data economy.  

Written by: Jennifer Jarvis, Head of Advisory and Channel Partnerships.