Open Banking Implementation in Canada and What it Means for Credit Unions
Deborah Moore, Celero's Director of Digital Transformation, and Barb MacLean, Celero's Vice President of Integration and Analytics, co-host today's episode to chat about the rapidly-approaching changes that will come with open banking in Canada.
Credit unions need to begin to think about these changes and how they will affect their operations and members, giving consideration to use cases they can explore to offer new and improved services.
The episode transcript can be found below.
Well, welcome everyone to another episode of Celero Spotlight.
I'm Deborah Moore, I lead our digital transformation and consultancy practice here at Celero, and I'm joined by my colleague Barb MacLean. She leads our integration and data analytics area.
Barb, it's a pleasure to co-host this episode with you and I'm glad you're here.
Yeah, colleague and co-host. I'm glad to add that to the range of things we're working on together, super exciting.
So, we're here today to talk about open banking and particularly in response to the report from the feds that was finally released on how open banking will be implemented here in Canada, and it included 34 recommendations, as well as a January 2023 start date.
They're taking an iterative approach, and this is so they can manage some of the risk around building a net new ecosystem, and continue to have a sustainable financial system here in Canada.
They're starting with data portability, which is the sharing of data between third parties and banks.
Then they're going to use that as a way, a mechanism to build governance, the sound governance and regulatory framework around that piece.
And then next will be what we would normally call rights access, which typically means the ability to make payments. And then the third is the switching piece, or the ability to open or transfer accounts between different parties.
And so, one of the things that I was really happy and encouraged to see is this stated direction or principle — that they want to make sure that payments modernization aligns with the work that's happening in open banking — because these were two streams of effort that were going on.
And now they're saying that that rights access will be driven largely by the work that's happening in payments modernization.
So, what do you think of that approach?
You know, I think it makes a ton of sense.
You know, you have to start somewhere, and the point is absolutely to get started.
I'm glad to see that it actually included what some are probably perceiving to be a relatively aggressive timeline, and you know, certainly for me that supports that key principle of you’ve got to start somewhere.
And the point actually is to get started and then iterate once you've got some of those new capabilities into the hands of customers. So, iterating on behalf of the customer has to be an important part of what we're all going to go and do and build together.
But I also would share your thoughts and perspective there, on alignment to what we all know is also going on in the Canadian landscape for that payments modernization, because you can't ignore two extremely impactful large scale complete rewrites of all the financial infrastructure that are happening simultaneously. They're going to have impact on each other whether you want them to or not.
In this case, it's totally true to say that obviously once you can start to expose new information to people and they can get a better understanding or access — you know, new value on the other side of consenting to share their information with another third party — well, they're going to want to be able to do something with that information, and that's where that ability to trigger an action comes in.
And it's very easy to think about some of those payments use cases, where triggering an action will come in, and I think, you know, you're rightly bringing up the second set of use cases — where being able to trigger an action, or write data to another system, or request that the data be written in terms of being able to actually go and consume a new product or service from somewhere else.
So, are you requesting to open a new account?
Are you actually requesting to move all of your services to another provider?
So, it's not explicitly stated yet in the, sort of proposal and timeline map that's contained in the report.
It is referenced that it needs to come someday, but maybe not as strong of a reference as some of us would have liked to have seen on, this is going to be a deliberate, you know, second phase of this entire initiative.
Yeah, I think it is kind of interesting there's not a stated timeline around those pieces, and so you're right.
So, as they align to payments modernization, a lot of those second and third phases is now then going to be driven by what happens there for sure.
So, some things might take a little longer.
What I observed is that the approach that we're taking seems to be a lot more aligned with what Australia has done, in such that if you look at what happened in the UK, its really payments driven.
So, they opened up the data around accounts that were payment taking or making accounts.
Whereas in Australia, they opened up virtually all accounts to open banking that would be considered, you know, within your online banking application. For example, for a bank.
And so, all of the data there was shared, and that's seems to be the approach that the government is taking as well.
So, I thought that was quite interesting. And there was a bit of a hint to that, but it wasn't defined, but a bit of a hint to that open data, because we know in Australia that was the whole pretense here for open banking, was they want open data across sectors. Whereas, they started with open banking, it’s just one step in the journey.
They had a much clearer delineated timeline and rollout plan, whereas I think ours, the near term is a little clearer, but as we get a little further out it's a bit further away.
The other way that they aligned to Australia, which was different than the UK for example, is this concept of reciprocity, which I also thought was a good concept.
So, in Australia, to participate in open banking as a third party, or a bank or a credit union, you need to provide reciprocal data back to that other third party.
So that means that it's fair game for the banks to request information from the Fintech and vice versa. Whereas in the UK it was only simply the banks, the main banks there, the big banks had to provide data, but there was no requirement for a credit union or a third party to provide reciprocal data back.
And here in Canada we know that it's an opt-in process for credit unions to allow them to get up to speed, credit unions are all in a different place. But the main banks that come under OSFI will have to participate in open banking.
Well, I think there's a reality there, where yes, everyone that participates in the industry recognizes that there's a different regulatory landscape depending on whether you're federally regulated, like the banks are, or for the most part, provincially regulated like the credit unions are.
But there is going to be a need to recognize a leveling of that playing field, or an ability to openly participate if you happen to be in one camp or the other.
Because I don't think any of us want to see a place where one group is disadvantaged versus the other.
And of course, the reality being, when you know the large banks in Canada occupy such a dominant share of the market, that will drive its own market activity as well.
And the folks that are not sitting in that “I'm federally regulated” pile probably don't want to be left behind or have a perception in the market that they are leaving themselves behind.
Yeah, and it was interesting because I did read — because there's been much discussion between the provincial regs and the federal regs — but in reading that document, there was sort of a comment there (I don't have it right in front of me), but there was a comment there that said that there was good alignment between the federal and provincial in order to open up open banking.
And I thought, well that that was kind of an interesting concept, so I think there's still further work to be done there, but I am glad to see that there's an opt in process for credit unions, and that credit unions then will be able to request data from banks. And so, this might be that game changer for credit unions to compete more effectively against the banks as well as other parties.
The other thing that came to mind for me, and the other piece or stream of work — so we talked about payments modernization, but also digital ID's.
So, there's been, you know, various papers and communication around the importance of digital ID, and I think digital ID is a big game changer. Because when we think about friction and the consumer journey, it's usually around authentication and identifying who someone is.
And so, once that is resolved, you're going to see all sorts of interesting experiences, more embedded finance into your daily life, where things are almost invisible.
It will be a game changer.
But where I see there being a real requirement and, you know, there should be some alignment between digital ID and open banking, but where I see there's going to be a real requirement is when we get to that switching of account information.
So, as you start to open accounts, or close and port accounts from one institution to the other, it's going to be — and it was quite clear in that report as well — it's going to be know your customer, know your member, will be the requirement of the organization that's opening up that account.
So, that due diligence work is going to add more friction to the process, and so the digital ID will help to manage some of that risk and remove some of that friction.
What do you think of that?
I think this is operating at a really interesting intersection point of many concepts that are not necessarily new, but that are certainly coming into their own.
Obviously open banking as a topic is not new, but has made a lot of progress in other regions.
The idea of embedded finance as you say, right — bringing the experience of consuming or actioning financial services into the points of people's everyday lives.
Potentially getting outside of those walled gardens of the apps of the banks as well, I think that's where that experience starts to take people. And the changing of the business models underneath that as well.
And when you opened up, you talked about building this new ecosystem — there was a really great podcast that I think we should link to in the show notes here when we're done — where Senator Colin Deacon was on the BetaKit podcast, and he talked about the changing of the, you know, solidifying of one’s individual moat, you know, one as a financial institution versus the active participation in the building of a larger open ecosystem. And that's a fundamental, you know, mind shift and business model shift for financial services organizations in Canada.
And I think that idea of being an active participant in that ecosystem and some of that interplay between reciprocity, as you were saying, is so critical and probably also helps greatly with the, you know, fundamental Canadian desire to have made in Canada solutions.
That's been an undercurrent of the entire discussion.
As we've, you know, played along on this journey to open banking, let's have a made in Canada solution.
We probably don't want to get trod on necessarily by a bunch of external participants, and I think that mutual reciprocity between the players that are mutually investing in the ecosystem that's here is so important to that.
Yeah, I listened to that same podcast and I think you're right, I think we should connect it here or link it to this podcast.
Senator Deacon, you know, he made a statement that, you know, the banks are really worried, and yet at the same time when they look to other jurisdictions the banks haven't blown up.
So, they've, you know, introduced new business models, surely it’s extended out some of their offerings, surely, but they haven't blown up.
He referred to them, and I thought it was quite funny, as “reluctant brides”.
And so, you know and he said, you know, but there needs to be a lead from these banks because they play such a pivotal and powerful role here in Canada.
And so, he does see that it's really important that they participate, and we encourage that participation.
Well, if I can extend your analogy, I would say that I think that made in Canada solution then gets built by “dancing with the one that ‘brung ya”.
There's an awful lot of folks that have been thinking about this and working hard to lay the groundwork for getting us here.
And let's make sure that we create that environment for collaborating together.
Yeah, and I think another thing that he said in that in that interview, if I recall correctly, is he talked about creating those commercial agreements right now that take into consideration what was stated in the report, and what the regulations are likely to look like anyway, as a way of prototyping that future.
And so, with industry working along in parallel with the regulations — and we saw this in Australia actually — where they're working alongside and learning from each other as they build and move forward. That's would accelerate the implementation of open banking here in Canada.
He also talked about the opportunity for Canadian organizations to be (particularly banks) killers at AML and fraud.
He says, you know, bringing in Fintech to solve those problems which have been, you know, the amount of effort and energy that goes in from the banks and really it makes us non-competitive on the regulation front, that burden is so, so big, and yet, how many crooks it really captures is very small.
And so, the ability to then, you know, bring third parties in Fintech into that equation and have them go at it, I think, and have them innovate, like how could this possibly work I think or how might it work I think was a really interesting comment from him as well.
Yeah, I think it was a subtle or maybe not so subtle point on, you know, there's multiple problems that can be solved here if you have new data or new information that can be used in a new way because you just simply never had access to it, or couldn't combine it with the other right data points before to do something interesting with.
I thought that was a really excellent point and I, you know, I've heard some folks talk about, you know, what is going to make an ordinary person care about all of the things that we're thinking about here?
What's the killer use case for open banking?
And sometimes I think it maybe starts to go back to what you're talking about happening in Australia, where they really took a much larger open data view.
And I think there's a really interesting use case on, you know, what if I could have access to my data stream from Manitoba Hydro in the region where I live, and those are the people that serve me up my electricity. And I know that I don't consume the same amount of power in my home every month, so it's not a static standard bill that I pay every month. I don't know what that amount is going to be until they send it to me, but I probably want to automate the payment of that bill. I don't want to not pay my hydro bill.
So, what if I could have access not only to that stream of information from Hydro, but combine it with the ability to tag it to a certain time in the month after I get paid, I want to pay my hydro bill on this date.
I never know what it's going to be, but perhaps those variable recurring payments and the ability to set it and forget it essentially to pay them.
Maybe that's the killer use case for open banking, but it does require expanding our world view of who needs access to what data and from where.
Yeah, the whole ability to sort of smooth payments and costs for consumers I think is a really interesting one, and particularly for marginalized communities, right?
There's an opportunity there to make services more accessible, and then ensure that folks are not overly burdened at any particular time, and this is also the responsible use of credit.
So, we see, you know, we see a lot of, you know, point of sale type payment mechanisms being created, and I think WOW, that that could get kind of unwieldly.
You know, buy now pay later scenarios right at the cash register — super quick, very enticing. And depending on what that access looks like in terms of how difficult it is to attain that credit might be an interesting piece too, but you know, are we creating a new kind of payday loan scenario here, right? Where they're accessing very high credit terms, so then that becomes interesting for credit unions particularly to respond to say, what would be an ethical practice there?
How could you help people manage, you know, if you've got, you know, 5-6 payments that are coming out now monthly, because they're all separate purchases, how does that all work together?
So how do you effectively manage that cash flow so that, you know, we know when how easy it is with the credit card, so this is yet another scenario that could be quite challenging for folks moving forward.
But in that challenge, I think there's a ton of opportunity.
I'm so glad you brought up that kind of, explosion that we've seen of buy now pay later.
What if we could change the perspective of which shopping carts are important?
Is it really important for me to be able to spread out the purchase of my $40 sweater over four payments, or is it more important that we all work together to figure out how to help someone smooth out their hydro payment over four payments that they actually have a hope of making, versus the lump sum that is maybe really challenging for them today.
So, I think there's, you know, good capabilities that are out there, but to your point, are they really serving the best outcome for the people that need them the most?
I think the argument would be definitely not today.
You know the other thing that you mentioned there, and I think, you know, you're talking about how to smooth that out, and that automatically goes to data analytics and the predictability aspect here.
So, the ability to predict when you may not be able to make that hydro payment, and help support you through that is another piece I think that is — and I know that's near and dear to your heart, that the analytics side of things — but that willpower, those experiences moving forward, and it can be used to really support folks so that they don't get into these sorts of challenges and help to support their well-being.
And that same kind of capability where you might help an individual or a household have, to your point, you know, ethical and effective access to credit products that they may never have had the ability to access before. That same kind of capability should so easily be able to translate to a key part of the population that drive the economy, which is small business.
True in Canada, true probably in many other regions of the world as well, and their lives are all about managing that cash flow.
And so, you know, those same kinds of capabilities should be able to be remixed in a very, you know, particular way so that it's satisfying what I think is unarguably a completely, you know, unmet need and unmet capability for Canadians out there.
One thing that came to mind, and maybe we can switch gears just for a moment, is let's talk about Banking as a Service for a moment. Because we talk a lot about how Fintech will be able to pull information, and there may be some value-add services that the banks or that credit unions can provide through APIs to a third party, for example.
But there is a play here — and we're starting to see that emerge in the credit union system here too, but certainly down in the States we're seeing it a lot — is providing Banking as a Service so a whole line of business, or component of a Banking as a Service that is using or leveraging the infrastructure inherent in the bank or the credit union, as well as their license to provide services back to the third party.
So, you know, Fintechs, for example, may not be regulated today, I mean, there will be some regulation that comes as they come under as part of open banking, but they're not regulated banking entities right now. And they don't provide deposit accounts unless they're doing that through a credit card or something.
So, there's different ways that banks or credit unions can provide those kinds of services through APIs, like a full line of business. And I see that being an opportunity for credit unions as well.
And looking at those products and services in unique ways.
Yeah, I think it picks up on the comment you made a little bit earlier, to a degree.
If we could get good as an industry at being good at KYC and AML for example, which we know the strategies and tools that people have in place are not effective.
If you could be really good at the thing that is your core competency, right?
Starting to focus in on what makes me unique, or my institution unique and how we deliver services to the market, and how do we monetize that in a different way?
Is it in the full package, manufacturing and distribution of those products, or is it by leveraging that core competency that someone doesn't else have that they can acquire through you?
And so, to your point, how do you potentially follow the, you know, golden Jeff Bezos rule of having an API for every service that you provide internally?
How does a credit union or financial institution follow that road and API-ify themselves, that's what's required in a Banking as a Service model, right?
How do you choose to redistribute your capabilities and not be so focused on distributing them out to the consumer in every event.
So, that that's an interesting mind shift, I think we're seeing some examples of that right now as well: Concentra Bank partnering with NEO Financial would be a perfect example of, you know, an organization that's choosing to follow the path of Banking as a Service and transforming their own business model to get there.
Well, and I think it opens, it paves the way for credit unions to all be participating in innovation and offering up those services in a cooperative way across the credit union system.
Rather than rebuilding something, you know, 100 and some odd times or 200 and something times, you know, you build it once and then it can be consumed by all of the credit unions that want that particular product or service.
And they might be uniquely differentiated based on values, based on other regional areas or unique segments that particular credit unions know very well, and maybe an area that another credit union wants to get into, but doesn't have that expertise.
And so, I really think there's some really interesting cooperative solutions that can be built under that concept of Banking as a Service.
Yeah, I think it's a super point, especially when you look across the landscape of credit unions and other cooperative organizations.
In terms of the financial services landscape in Canada, they obviously skew towards being the smallest individual institutions, especially as you compare them up against the big banks, and does every credit union need to have their own mortgage expertise, let's say, right?
If everyone is still interested in offering mortgages, but you don't even really want to white label it from another organization, but you just need the capability to facilitate it.
Fraud management might be another topic in the same vein.
So yeah, I think the cooperative sector particularly, could see a lot of gains out of collectively pursuing that kind of model.
And it goes back to our earlier point of Fintech not all necessarily wanting to integrate to the credit unions, or not seeing them as they're, sort of, right for them as they're looking at more global platforms and a global customer base and growing that way.
So, I think, you know, there is certainly an opportunity there for credit unions to look at themselves as, they could even call themselves a fintech, or a bank of the banks.
Yeah, I think it's interesting to see how the evolution of the notion of credit union membership is going to play out as these business models evolve.
So many of the credit unions of course traditionally grew up by serving a particular community or geography, and I think the idea of “the ties that bind” has completely shifted them in the last 100 years. And especially over the last couple of years, where that community and sense of belonging probably is an entirely digital experience — or could potentially be.
So, you know, what are the characteristics of folks that have a similar interest, you know, and how do you then tailor a service that is solving that community's unique needs?
And does that then start to shift credit unions on how they may go to serve other markets outside of, traditionally, the town in which they grew up?
Well, absolutely, because there were a lot of, you know, many credit unions that are based on geography, particular ethnic groups, industry groups, and they had close bonds lot of them, traditionally.
And now, you're right, that sense of community has changed, and it might be all sorts of different types of behaviors or interest groups that come out of it that create community that folks are interested in, on certain kinds of values that they share, interests that they share, for example.
So, we haven't talked yet too much about some of the contents of the report, and inferred it a little bit, right, what is perceived to be perhaps an aggressive timeline to initial implementation of January 2023, and it's starting with the ability to read information based on sharing that information from the customer's perspective, and then later on being able to trigger actions based on it and write information.
But I'm just a little bit interested, I think, and you know, if you pick up on the idea that a guiding principle is likely needing to be, just get started, and you also I think, picked up on some of the commentary from Senator Deacon about talking about, well, let's start framing some of the legal agreements that need to be in place now.
What are some of the other things that you think are going to start to come to pass as people that want to be early participants in this new ecosystem are going to do first and next?
Well, there's going to be a number of things, they need to make sure they have (we know this) the infrastructure in place to support open banking, and to participate in open banking.
Like from a credit union perspective — that regulation piece is going to shape (and we've got a pretty good idea of the big rocks that will be there), but that regulation is going to shape, in large part, what credit unions need to do.
For example, around customer redress programs and understanding that. But they need to start internally first, and understanding first of all, what is their data governance, ensuring that they have appropriate data governance in place. ensuring that they understand what the opportunity is and where they really want to play in an open banking world.
I think they really need to take a good look at the services they provide today and re-imagine what that might look like in an open banking world.
It's not simply just opening up so that you can share that data. I think that that would be a very short term or short-lived strategy, if you know what I mean.
But I think it's having the courage to look at new business models and what that might mean for their organization moving forward, and even what their talent does today.
There is, I want to say, such a challenge now attracting and retaining the kind of talent that you need in this new digital economy.
We're all competing for the same kinds of resources, so making sure that you have the requisite talent management strategy in place, the leveraging of how you're going to work with partners, for example, to augment and support, is going to be really important moving forward.
Because I do get asked often, “oh, is this going to mean we're going to lose employees, that we're going to have less staff?”, and I think it's about the type of skills that you need to build in your current employee base, as well as how you're going to augment moving forward.
We don't want to leave anybody behind, I don't think that's the pretense here, I think we are going to be in dire need of the right kind of talent to help move this work forward, and I think it's up to all of us as credit unions to build that talent and develop that talent.
You know that part of the story line is most likely one of the most important ones.
You know, outside of focusing on the end users and, you know, our fellow Canadians in which this is all intended to serve. It's very easy to get, I think, trapped in the how, you know, you're going to need to figure out where your data is, you're going to need to have APIs for them so that it's, you know, easily shareable and remixable when the member comes knocking.
But if you don't talk about the human element, and ensuring that as you figure out how you need to start to serve members differently, that you don't dehumanize that digital experience — whether it's facilitated by open banking or not.
If you've missed that human element of it, you've missed the whole point.
And part of that, obviously, is figuring out how you can, you know, bring the folks in your organization along with you.
It's up to you to tell that story, right?
And you're obviously going to find the folks that are very keen and those that, you know, need more support and education and upskilling and reskilling to come along on the journey with you, because I think we will all find the vast majority of the folks that we work with every day want to go along on that journey, but they maybe don't know where to get started either.
You know you're connecting here to digital literacy, and there's two components: there's the employees, and there's the members.
And we know (and some research that I've been a part of) is that you maintain that literacy quite often through your job, that digital literacy. And so, it's commissary with the type of role that you have, and your access to digital tools at work and training and things like that.
And we anticipate that over the next while there's going to be a big focus on yes, upskilling our internal workforces and making sure that they can participate themselves as individuals in the digital economy, that also they can support others. So that's putting the oxygen mask onto their work with members.
We saw in the UK when open banking came out there that, you know, consumers didn't know what open banking was. They didn't understand the concept.
And there really wasn't enough focus on public education, so there's a couple of components there as well.
There's understanding the value to me, understanding how to securely use open banking, third parties, and all of that.
But the other piece is, I'm now in control of my data.
Well, how many people in technology manage their data, their own personal data, very effectively, never mind a consumer who's not had to do that in the past?
So, there's another role, I think, a cooperative role here, where how do you then support your members in appropriately, and securely, safely managing their data?
Because I think we're kind of all hoarders, right?
And as your data has proliferated out there, with all the different relationships and things that you've had in interactions digitally, so moving forward, having the right tools, maybe even innovating around the kinds of tools, but there's a whole literacy component.
I know that in the UK, not so much on the data side, but for open banking that they really weren't getting the uptake, and again, it was just because there was not public awareness, so they created a whole app store for open banking and whole program around how do they create more consumer awareness.
So, there's a lot that we can learn by going a little bit slow here. We’re behind, we're definitely behind —it's not aggressive because I was thinking about your comment earlier, saying, well, they're taking kind of an aggressive stance to move forward with open banking.
It would have been a little bit aggressive if I had said that this was three years ago, maybe.
But now we're three years later, and now we've got a year out, so I think, yeah, we're definitely not all that forward thinking. However, we do get the benefit of learning from jurisdictions that are more similar to us.
There's obviously there's open banking happening across the world, but particularly the UK and Australia, there's a lot of good learnings there.
There's some learnings out of the States, but of course they've got quite a different, more fragmented kind of approach and a market driven approach, which is quite different than what we're taking here, which is a hybrid of private and public industry working together.
Well, hopefully listeners from today can take away some of those learnings and I think it would be a benefit as well if we can link out to some further information in the show notes to further the learning.
Because I agree, this is a learning journey for all of us, and I'm excited to be involved and I just want to thank you for including me in the chat on it today and hopefully it's been a benefit to listeners.
It’s always fun chatting with you, Barb, and yeah, I'm absolutely excited and I'm particularly excited for that open data environment because to your point earlier, I think this is where real innovation will happen.
Celero is a leading provider of digital technology and integration solutions to credit unions and financial institutions across Canada. Clients trust Celero’s proven track record delivering innovative banking technologies, digital and payment solutions, cloud computing, outsourcing, IT and advisory services.
Other posts by Celero