Open banking is defined as a way for fintech companies to work seamlessly and securely with your traditional financial institution. Traditional screen scraping apps require your username and password in order to access your financial data. In the other hand, Open banking applications can proceed without your login information. After you give your authorization, the app shares the data with your bank via an application programming interface (API). From there, the app can do anything from helping you change banks to advising you on a new cryptocurrency investment.
Image source: Financial Consumer Agency of Canada
What is open banking used for?
In the European Union, open banking rose to prominence after the passage of directive 2015/92/EU, which states that legal residents of the EU can open a bank account with basic features in any EU country. Already, banks were working with Third Party Payment Service Providers (TPPS) to adhere to Payment Services Directives issued in 2007 and 2013. Open banking trended upward when banks not only had to support a single payment market for all of the EU, but had to ensure that every EU resident was able to access the market.
It’s not just about accessible banking. Reducing the barriers to entering the financial sphere stimulate economic competition. A wealth of fintech startups are capitalizing on the new possibilities, with the uses below representing just a fraction of the open banking innovations on the market:
Recommending products and services.
In the UK, Chip markets itself as a wealth-building app for the average individual. Users authorize their API to access their bank data, and Chip negotiates with partner banks to get the best interest rates for their customers.
Fintech startups like Koyo are using open financial technologies to lend small amounts of money to consumers with repayment plans that reflect the borrower’s financial situation. For people with a low credit score, apps like Koyo offer a way to take out a loan safely and securely.
Income loss verification.
At the start of the COVID-19 pandemic, UK fintech companies developed a proof-of-concept for an open banking API that could verify lost income quickly and efficiently. A procedure that previously involved hours of red tape was reduced to a simple survey on a phone app. Other bureaucratic processes could be similarly pared down to a few button clicks on an app with open financial technologies.
In the past, it was impossible for individuals with visual impairments to use an unfamiliar ATM. It would have, first, required the help of a sighted person. Enter BBVA of Spain: their new open banking app locates the ATM nearest the user, directs it to emit a sound when the user is within walking distance, and allows the user to interface with it via their own smartphone rather than an on-ATM touchscreen.
Data analysis with artificial intelligence.
One of the primary barriers to AI applications in fintech is the limited availability and accessibility of consumer data. Open banking is a gateway to acquiring and consolidating high-quality, real-time data on financial trends. Your business could become the next big startup if you apply AI data analysis methods, supported with sound IT infrastructure, to the Canadian financial sector after its adoption of open banking.
What is Canada’s open banking program?
At present, Canadian financial institutions don’t have the right to use open APIs . The Canadian government is currently deciding how best to introduce open banking into the economy. Their latest review, conducted in November 2020, was focused on obtaining information from stakeholders on a proposed framework for open banking in Canada. Open banking is poised to emerge onto the Canadian financial sector within the next few years.
How will open banking affect the financial sector?
Whether it is for loan approvals or adapting ATMs for the blind, accessibility is a major factor in the implementation of Open Banking. How will this affect banking trends in Canada? Improving accessibility for consumers will drive up the competition in Canada’s financial sector. It will disrupt an industry dominated by hundred-year-old institutions that have changed little since they arrived on the scene.
PWC Canada predicts a rise in opportunities for smaller companies with the advent of open financial technologies. Diversifying investments can lead to a headache but will decrease for the average consumer. Exploring cryptocurrency trading or taking out a business loan can be very risky. However a fintech app can provide feedback about a venture’s plausibility and potential impact on the user’s finances.
Overall, open banking will shift the focus from the institution to the user, the corporation to the individual. Consumers will have more choice when it comes to borrowing, saving, and investing. For fintech companies, this can be an opportunity to cultivate a new customer base by using APIs to increase the availability and utility of financial services.
Prepare your business for open banking in Canada
Will you be riding this wave to success? Or will you lag behind the early adopters? Adapting your IT infrastructure to support open banking applications will keep you ahead of your competitors. Hypertec has decades of experience in developing secure IT solutions for financial services. We can optimize your API capabilities so that you hit the ground running when Canada opens up the banking industry.
Get a quote for integrating your current IT infrastructure with new open financial technologies today.