Partnerships & Education - The Key to Open Banking Success in Canada?

Posted on May 27, 2021

Last week, #FFCON 2021 (Fintech & Financing Conference and Expo) was held, and the digital conference reflected on the growth and challenges that the Canadian Fintech industry is currently navigating. There were various events, panels and discussions with over 100 speakers in three days. 

One specific panel touched on a few topics including re-imagining customer relationships and user experience in Open Banking or Consumer Directed Finance.  

It was an invigorating conversation that highlighted the need for more partnerships and education in the Canadian Open Banking landscape. 

Here’s who participated:

The moderator: Michelle Beyo, CEO and founder of Finavator, which is a Fintech consultancy largely focused on payment innovation.

Panellist 1: Timothy Li, CEO at Wikipro Inc and CEO at Alchemy, a lending software system that powers Fintech, brick and mortar and point-of-sale financing.

Panellist 2: Hamed Arbabi, CEO and founder of VoPay. Arbabi is recognized as a Fintech industry innovator and thought leader. 

Panellist 3: Betty DeVita, CBO at Finconecta. DeVita is a global digital transformation executive with  expertise in consumer financial payments.

And here’s how it went down: 

*Disclaimer: This question and answer series has been edited and condensed to improve flow and the reader’s overall experience:

Question 1: I would like to start today's discussion on the current progress or state of Open Banking within Canada and the US. We will start with you Hamed and your Canadian view, knowing that you worked in the US as well, but being in Vancouver compared to the world, how is North America doing in the sense of Open Banking?

Hamed: Open Banking is relatively new in North America when compared to Europe and the rest of the world. We have seen how open banking has been successful and provided significant value for both customers and service providers in Europe and Asia.

In North America, we’ve seen so many innovative companies build open banking solutions through APIs, but there are still many challenges, as we see the technology evolving in the market. Consumers are still getting educated on how they can benefit from this technology, as well as businesses alike. Meanwhile, regulators are trying to ensure data, security and privacy agreement across the industry.

Betty: I love when market forces actually drive innovation and without necessarily a formal regulatory frame; it's clear this is happening because of consumer demand for these frictionless experiences.

I think Canada has actually got a bit more headway, even though it's still not there with regards to some of the documentation and papers that have been out for feedback across the industry. The US went and launched FDX, which gives some standards as to how APIs get developed.

But it's really around trying to drive these new use cases that consumers are demanding, and that Fintechs are developing. They're challenging the banks. And I think the banks are very clear that they need to collaborate in this ecosystem and that's driving everyone forward.

I see Canada as a great market to be able to launch a platform and space where financial institutions and Fintechs and startups can collaborate, contest and innovate, but also meet the needs of consumers and small businesses.

Question 2: What do you think of some of the products and solutions that can be brought to market in Canada and the US with the implementation of this open finance framework? 

Timothy: Speed to access for credit. Let's say I want to go to the dentist and get some work done, a couple of thousand dollars worth. I don't want to use my credit card. I can be underwritten right there and then for that credit. I can simply log into my bank account to approve this; it is my ability. You don't need to look at my credit score. You don't need to know what happened nine years ago. I'm gainfully employed. I have savings. This credit may only last three or four months before going to be paid back. So, actually having the bank account information or bank transactional information might be really powerful for people to get credit without having to pull credit reports. Plus, when you pull credit reports, sometimes it impacts credit. This space is going to open up with different use cases. 

Hamed: Yes, the B2B space has been transformed by COVID: all of the businesses have had to transform to digital payments, which is our space. And one of the areas that are challenging for companies that aren’t digital is how they onboard customers, verify their bank accounts and prevent fraud.

All of these businesses have been previously working with wire payments or cheques, or basically, the paper instruments that have been their primary method of payment. Through Open Banking, we have been able to simplify onboarding, verification of account ownership and to Timothy’s point — simplifying the service offering.

Verifying additional data, which can be accessed from a Credit Bureau, is not the best way to authenticate something when providing someone with a facility or a service. But if you provide access to banking or data that comes from someone's banking as an additional validation, it speeds up loan approvals and makes the experience frictionless for the customer.

So for us, what we have seen is that Open Banking has provided significant value to streamlining, customer onboarding and setting up payments. We have been able to validate the payments in Canadian EFT/ACH payments, which are not real-time, three days delayed, but what we have been able to achieve through open banking is to accelerate those payments to less than a day by verifying the transaction on the customer account.

And that helps businesses with their cash flow and a faster service offering to their customers. And we believe that open banking is going to continue to contribute to all businesses and consumers, and their interaction together. 

Michelle: Yeah, I think you're absolutely right. Obviously, COVID has driven us into the digital era of times, 10 years ahead. 

Question 3: Hamed, while talking about Canadian payments, there’s a discussion to be had about global payments. How is open banking and the infrastructure, secure or more secure, as well as how do they provide more affordable services to small businesses on that B2B front? 

Hamed: Open Banking and payments have very close relevance in how we can improve the user experience and accelerate the movement of money. But, at the same time, the challenge we see in open banking is the lack of transparency on how the services are provided, how the data is shared or who has access to the consumer data.

And what we see is that some consumers are still not comfortable providing their account information to a third party when receiving payments. So, I believe education is one of the key factors that we all need to focus on, so consumers understand: How will everything be managed? How will data be stored? And who is the ultimate owner or holder of the data? 

Financial data has been there forever since the banks started, all of your transactions and banking history are available too. But now it's about how you can have access to that data. Screen scraping has been a temporary solution. The challenges there are always the ups and downs with the screen scraping solution. As the bank changes their interface, things break down and our partners have to go fix that too, to make sure you have access to the service. 

Open Banking APIs are going to play a significant role and we are hoping that banks will be more positive toward taking open banking seriously and accelerate that innovation and offering the services directly to the service providers in the open banking and payments space, which will solve many of these issues.

Question 4: What does Canada need to think about as we try to implement open banking? What's the most important thing you believe, with your history and your organization, to ensure that Canadian consumers and small businesses and banks and Fintechs flourish in the future? 

Betty: I found from my seven years in Canada, between Citi and Mastercard, the openness and willingness to collaborate will really drive that across the financial institutions, the Fintechs, the payment providers, the processors, and the government to really understand what technology is doing. So, how the consumer is moving forward, and ensure that there is a framework in order to be able to safeguard the customer data.

The banks do have to upgrade their infrastructure in order to be able to deliver some of these solutions. Because I don't think it's only Fintechs. I think it's the huge digital players that provide all of these experiences in their apps and in their consumer journeys. And the consumer is going to be demanding this type of standard. And I see the banks actually open to understanding that it is kind of the writing on the wall. But that it has to be done within the framework of governance, security and transparency.  And I do think Canada is in a really good position.

Hamed: Yeah, definitely. I agree with Betty. It all comes down to collaboration and how technology companies can collaborate with banks, government, and the regulators.

One thing I see missing in Canada versus some other countries is that other places have already embedded open banking and other technologies into their financial services. It’s a regulatory or Fintech sandbox that everybody can participate in, share their point of view, bring products to the table, and have that open approach. So, how do we have this open dialogue, and open the doors to regulatory issues or invite others to the Fintech sandbox? 

And I think doing so would play a significant role in how we can accelerate delivering cutting-edge technologies in the financial space. 

Timothy: Back to what Hamed was saying, education is so important and privacy is so important. The ability to trust third parties and first parties, this data will be a no-brainer. 

Education is still a big issue in the US. We kind of forced Plaid and Yodlee onto people. And all of the sudden — (people said) what do you mean I'm logging into my bank and what do you mean you can get my information?

Canada is in a unique position to start educating people on what open banking is. 

Moderator’s Final Words 

Michelle: Canadians are conservative, but there are 4 million plus, already utilizing screen scraping today.

I think the goal is to try and teach them what the advantages of open banking are. It's not what has been marketed, which is that your data is going everywhere because it's open, it's actually protection. So instead of unsecured open banking, which I think currently lives in some minds in Canada and in the US. It's secure, open banking with banks and rules.

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