Open banking has been gaining momentum globally, but what about in Canada? In the first episode of the Simplify Payments podcast, we sit down with Alex Vronces, Executive Director at Fintechs Canada, to discuss the potential implications of open banking on the Canadian financial landscape.
The Simplify Payments Podcast, presented by Paramount Commerce, is a podcast series that takes a closer look at new and emerging financial technologies and practices with some amazing industry experts.
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Full episode transcript:
Varad Mehta: Hello everybody, and welcome to Simplify Payments presented by Paramount Commerce. I’m your host, Varad Mehta. And in Simplify Payments, we’ll be exploring new and emerging financial technologies and practices with industry experts. In our first episode, we’ll be discussing open banking and what it’ll look like when it arrives in Canada. Our expert for today’s episode is Alex Vronces, the Executive Director at Fintechs Canada. So please sit back and enjoy the show. Alex, how I would like to begin this podcast is by asking you a few fun questions. I read online that you were a journalist and an editor. I believe you still are a journalist. So what is your secret recipe of writing a fantastic headline? And are you a supporter of click bait headlines?
Alex Vronces: That’s a good question. I’m already liking the way this is going because on a lot of podcasts and a lot of interviews, people ask you the same questions over and over and over again. And I guess to the point where you feel like you’re reading a mental script because you’ve given the answers over and over again, no one’s asked me this question before. So first, I’m no longer a journalist, but I did dabble back in the day. What’s the secret to writing a good headline? I’m going to disappoint you because I was never good at writing headlines. I would always suggest them, and the editor would always suggest other headlines. Quite often journalists don’t write their headlines. They’ll suggest them, but there’s usually someone else in the newsroom who can come up with something better and their way often prevails. But do I support clickbait? No, I do not. But I think a good headline needs to be clickbait. But then you need to deliver on the goods in the piece itself. It needs to be deep, thought-provoking, interesting, nuanced, present all sides. I know not everyone is interested in that kind of reading, but that’s the writing that I am most interested in. I don’t mind a click-baity headline if all it’s doing is attracting my attention to what turns out to be a very deep, profound piece of work.
VM: My last fun question, hate to disappoint you, but the last question is, what’s an underrated song on your playlist that you think needs more love?
AV: I’d love to keep the fun questions going. We should do it for the whole podcast, but it’s a song I just actually liked and added to my Spotify playlist because I just added it and I’d not heard of it before. I think that by definition makes it underrated by myself included. It’s called They Die By Dawn and other…Sorry, it’s a long title. They Die by Dawn and Other Short Stories by the Bullitts, Jay Electronica, Lucy Liu, and Yasiin Bey, who is Mos Def, for those who don’t know.
VM: Okay, there you go, people. Check it out. Now, Alex, going into the topic of discussion today, which is open banking and open banking in Canada, I’d like to just briefly begin with you maybe explaining in simple terms what open banking is for our viewers. Even I looked it up. It’s like a big practice to understand. So could you just explain it in simple terms?
AV: For sure. Open banking can mean a lot of things depending on who you’re talking to. And I think it’s because it represents different opportunities to different segments of the market. But the way I like to think about open banking is this, open banking is a bit of a misnomer. It’s not about opening the vault of financial data. It’s actually about strengthening the vault. It’s about making the vault harder to crack open. It’s about setting the terms and conditions under which one can open the vault. Open banking is a regulatory initiative that puts customers of banks and of fintechs in control of their financial data, letting them share it safely, securely, and efficiently with whomever they choose. Compared to what everyone calls open banking in other jurisdictions such as Australia, for example, the way financial data sharing happens today in Canada is something of a Wild West. There aren’t really any guardrails or requirements that the government sets that firms need to abide by. It’s all decided by the market. The market is good at solving so many problems, but it’s not good at solving them all. And I think open banking or data sharing is one of those things that’s been a problem in the Canadian market for decades. Other than making the sharing of financial data, which millions of Canadians already do, more safe and secure, open banking also lets Canadians have access to a range of tools to improve their financial well being. This is that innovation angle that everyone talks about. Yes, it’s about making things more safe, but by making things more safe and giving entrepreneurs parameters within which they can innovate, it gives the market more certainty and entrepreneurs more certainty to be able to build all kinds of cool stuff.
VM: Interesting. I think the first time I heard about open banking was maybe through just reading about what’s happening in Europe, UK, I believe, in more detail. Could you just maybe explain how open banking works in different parts of the world? Are the models different? How do different countries adapt to the concept of open banking?
AV: Yeah. I think technically at the end of the day, what most people mean is that banks are exposing APIs to the market and third party fintech applications with permission from their customers, of course, make calls on those APIs to access the data of their customers. And again, it’s all based on permission from the customer. If I’m a customer and I want to use a cool product from this fintech application and I give it permission to access my data, it can go ahead and make the API call. That I think is what most people imagine when they say open banking. The way to make that happen can differ from jurisdiction to jurisdiction. In places like the US where it’s long been left to the market, you’ve seen an open banking ecosystem emerge through aggregators. In a place like Canada where we don’t really have much, it’s still in its infancy. We have a lot of screen scraping. The premise of the government exploring this initiative in the first place was that millions of Canadians are sharing their data, and they’re doing it by giving away their online banking credentials, and then firms are logging in as if they’re the Canadians and they’re scraping the data. Since this potentially voids your banking agreement, it’s definitely not the best way to do it. In other places like Australia and the UK, you had the government basically come in dealing with the exact same issue that we’re dealing with here in Canada, but they went further and said, Look, we’re going to put our foot down. We’re going to tell you what to do and when to do it by. In Canada, it’s still not clear to the market how this is going to be implemented. There’s obviously a lot of back room chatter that doesn’t make it to print, signaling which way things may go. But at this point, I’d say it’s speculation.
VM: Maybe just continuing on that same thought, what are your thoughts on Canada and open banking, we’ve read about a “made in Canada” approach when it comes to open banking in Canada. Maybe could you describe what that means and how do you think that is going to go out in Canada? Is that the correct way to approach it?
AV: I think any answer I gave you about what a “made in Canada” open banking framework actually is would be something of a lie because I think all the actors in the Canadian market right now are defining what that means as we go. Many different stakeholders pointed to different markets and said, we should do it this way, no, we should do it that way. Though Canada is not unique in every aspect, there are some Canadian idiosyncrasies that make it hard to just copy and paste what other jurisdictions do. And so a “made in Canada” approach probably makes the most sense, but I don’t think we have a common definition of what that means. Open banking in Canada is very complex. It has many moving parts across the federal and provincial governments, within the federal government itself. There’s ongoing and deep collaboration between all these different levels of government and agencies in government and industry. When there are that many moving pieces, it’s always going to take a lot of time and people are always going to come to the table with different visions and different ideas. So we’re working through what made in Canada open banking means. Now, what’s concerning to me is how someparts of the market have been taking advantage of the time it takes to make policy. They’ve been taking advantage by trying to get ahead of the government. Some in our financial sector were pretty quick to bring FDX and Open Banking Standard in Canada to the Canadian market in 2020. They’ve been working behind the scenes to build support for their preferred approach, which is to implement open banking through a data exchange that a few large financial institutions collectively own. Their idea is keep the government away and let the market oversee itself. Whether that approach works in Canada, ultimately, I think is to be determined. I’m not sure how the Canadian public would respond to that. On the one hand, the Canadian public is not very aware of what open banking is, let alone what it should look like. But there are some parallels to other issues that Canadians are a little more aware of. We’re quick to demonize big tech for erecting a wall around our data, but we forget that Canada’s financial sector has been doing the same thing for ages. They’ve been in control of our data for decades, and they’ve been making decisions about what to do with it. In the early 2000s, banks were sharing our data with account aggregators when they launched their online banking portals. You can actually find an article about this in The Globe and Mail. It was published in the year 2000. To launch their web portals, Canada’s big banks were using account aggregators who were using screen scraping to aggregate all of our banking information. This was more than two decades ago. The debate seems earily similar to the debate now. The Privacy Commissioner was in the story talking about the risks to our personal and sensitive information. Today, the premise of the government’s foray into open banking is the exact same. It’s to move the industry away from screen scraping it and towards a more safe and secure and efficient way to do it that ultimately protects the privacy of Canadians. After unearthing that millions of Canadians already do this, the government also learned that in order to do it, Canadians were again sharing their online banking usernames and passwords. That’s obviously not the safest. It puts Canadians in a very challenging situation if one day they wake up and their savings account has been cleared out. If you’ve violated your banking arrangement, your bank isn’t necessarily liable to make you whole. If someone’s hacked into your account and cleared it out. So the status quo in Canada is really your bank, your service provider, makes all the decisions about what to do with your data, who you can share it with, how you can share it, even which data you’re allowed to share. And then when they let you share your data, as I just said, the only way they give you is far from optimal. And when they don’t let you share your data, which happens as well, they cut off all sorts of screen scraping connections all the time, they’re really just depriving you of the services you want to access to get more control of your financial life.
VM: If consumers are craving for the government to get involved for better consumer protection and just having that trust behind something like open banking, are there any hurdles that they’re going through? Because I’m sure they could look at models, not maybe directly copy, but maybe be inspired by something like from the UK or maybe other countries get inspired by their models and then apply to – make it more Canadian. What hurdles are they looking at? Is that causing issues with the implementation of open banking? Do you see it taking a little bit more time than it should?
AV: Yeah. Depending on who you ask, you’ll get a different answer. There are a lot of theories. I think the truth is pretty mundane. It’s that we have a government that is responsible for much more thanopen banking implementation. They’re dealing with countless issues, countless problems that they need to solve, and they’re prioritizing just like everyone else, just like all the startups out there who have millions of good ideas but can only really focus on one or two of them to find their product market fit. So this government supports open banking in principle. They’ve put it in an election platform. They’ve put it in a minister’s mandate letter. They’ve started a process. They’ve appointed an open banking lead. They’ve convened the industry. They’re working on the problem, but they can’t devote their full attention to this because they have a million other things that they also need to do. And when different stakeholder groups vehemently disagree about what the direction should be, it makes it hard for the government to put its foot down and say, we’re going this way or that way, because it knows that no matter what it does, someone’s going to be very angry. Maybe the reasons for the anger are quite legitimate because maybe by going this way, I’ve broken the financial system. Maybe by going this way, I’ve not made it so that Canadians can access the services they want to get control over their financial life in a time when many Canadians are struggling. The choices for a government are never easy to make. Every decision comes with risk. When you combine that with just everything else that this government needs to do, it’s no surprise that though there are many proposals in front of government, we haven’t seen a decision on them yet.
VM: Apart from the government, what other players in the market do you see playing an important role behind the implementation of open banking? Is there anything maybe that the banks can do? Is there anything that the fintechs can do to maybe push this a little bit quicker?
AV: Yeah. I think there’s obviously a role for everybody in this, but I think it really has to start with the data holders, the ones who have assumed control of Canadians’ data, whether they want it or not. And that happens to be banks. Fintechs are out there building cool applications. Fintechs are out there building not just cool applications, but applications that make a real difference in the life of someone who wants to build their wealth, make ends meet. So they’re doing their part. There are a few layers of answers here. There’s like, how does the market implement the direction they get? Obviously, banks need to invest some money in building APIs and exposing them. Fintechs need to continue to build products. But the other layer is how can the industry work together to help government make a decision here? I don’t think that’s as easy a question to answer because if you talk to the different participants in the market, people have pretty different ideas for how this thing should be implemented. If you go look at the Canadian Bankers Association submission to government in 2019 when the government first consulted on this, they were pretty clear that they wanted an industry led model where banks, they didn’t put it this way, but where banks necessarily will retain a lot of the control they have over Canadians’ data. For a lot of fintechs, that doesn’t work because that just represents the status quo, which is broken for many of them.
VM: That’s a lot. My last question, Alex, what are maybe your final thoughts on open banking? What do you see? Are we going to see something within the next year? Are there any big moments or milestones within open banking in Canada that you’re hoping to see this year or maybe next year?
AV: So I don’t like predicting the future, but I think a somewhat optimistic prediction would be the industry, banks, stand up a safer way to share data this year, later this year. I think I said earlier in the call that some banks prefer to implement this through a data exchange owned by a handful of large banks. They stand that arrangement up. It works. Canadians can now share data more safely. To promote more confidence in the system, the government releases a code of conduct that’s essentially voluntary while it works out the legislative stuff, which is going to take a long time, privacy reform, creating an oversight entity to manage the ongoing administration of the system, which is what the government’s own advisory committee recommended to do. Industry stands up a data sharing arrangement. It’s been pitching at the government today, the government releases a voluntary code that creates a common set of rules for everyone that’s publicly accessible, transparent, so Canadians can see it and see that the government has its hand on the wheel as well as everyone else, and then communicating that the work is not yet done. We still have to reform privacy law. We still have to create the oversight entity. We still have to make consequential legislative amendments to the financial sector legislative framework. All that stuff that I just mentioned in that third thing won’t happen this year, but the government can communicate that it will happen in the years to come.
VM: I think I speak for everyone when I say that what a fantastic way to begin this podcast series and having you Alex just explaining what may seem a little bit scary to some people. It was scary to me, I know, when I looked up open banking. It was a lot to take in at times looking at different countries, but I think you explained it so perfectly and what it means for businesses and consumers and the government in Canada. I want to thank you so much for being part of this podcast and I hope you enjoyed the fun questions. Please reach out to Alex for more information about writing headlines and stories and also open banking. I thank you for your time, Alex, and have an amazing day.
AV: Thank you for having me.
VM: That is our episode for today. I want to thank Alex Vronces, the Executive Director at Fintechs Canada, for joining us today and explaining open banking and what it’ll look like in Canada in such an amazing way. If you have any questions for us or Alex, please do comment them down below. Please like, share, and subscribe to our YouTube channel. And thank you so much for tuning into the Simplify Payments podcast. I’m your host, Varad Mehta. And I’ll see you soon.