Online banking has become a staple in the financial industry, making it easy for consumers to access financial products and services remotely. But with open banking, consumers can gain access to many more financial options from third-party providers, whether it’s to help pay bills, save money, or borrow money more easily, all while retaining control over their login credentials.
But what exactly is open banking? Is it safe? How does it differ from the way Canadians are already accessing financial products? Let’s take a closer look at open banking to answer these questions.
What Is Open Banking?
Open banking is a process whereby banks and other financial institutions share consumer financial information with third-party providers; namely, financial technology (fintech) firms. More specifically, financial information is shared electronically and securely, and only under consumer-approved conditions. This is a more secure way of accessing financial services from third-party providers, as you don’t have to provide your online banking credentials to access the service.
The idea behind open banking is to make financial services more convenient for consumers. It promotes the creation of new apps that consumers can access directly from their mobile devices. By opening access to information that banks typically keep to themselves, open banking allows innovative fintech firms to develop new products for consumers.
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How Does Open Banking Work?
For consumers, using open banking is very easy. Follow these simple steps to get started:
- Step 1. Find a fintech app you want to use to help you manage your finances.
- Step 2. Link your bank account(s) to the app to allow it to access your financial information.
- Step 3. Authorize your financial institution to share your information with the app through open banking. You don’t have to give the app your username or password, so you’ll be protected against any fraudulent activity.
- Step 4. Your financial information will be shared with the app via a secured online channel. From there, the app will assess your information and suggest financial products and services that may be suitable and beneficial for you.
Benefits Of Open Banking
While open banking is not currently available in Canada, there are plenty of perks you can benefit from if it does become available.
There’s no need to enter your username and password to use these fintech apps, which means you’ll have direct access to financial products and services without the cumbersome process of logging in.
More Control And Choices
With open banking, you’ll access a broader range of convenient and helpful financial products and services that you need. Using open banking through fintech apps can help enhance how you manage your finances and give you control over where your financial information is going.
Open banking through fintech apps provides you with real-time access to all your financial accounts, products, and services in one convenient location. This also makes applying and getting approved for loans more convenient, both for you and your lender.
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Open Banking Vs. Screen Scraping: What’s The Difference?
A lot of financial information is already being shared by fintech apps through other avenues besides open banking, including “screen scraping.” It’s important to understand that while screen scraping and open banking might sound similar, they are not the same.
What Is Screen Scraping?
Unlike open banking, screen scraping requires you to share your online banking username and password. They’ll use this information to log into your bank account on your behalf and transfer the data to an external platform. This places you at risk because sharing this sensitive data ultimately means you’re breaking your electronic access agreement with your financial institution.
While you may be able to access similar financial products and services through screen scraping, there are plenty of security and privacy risks involved.
- Less Control – You won’t have any control over your username and password. Fintech apps will also have access to all your account balances and transactions.
- Lose Protection – Any protections that your bank offers against fraudulent transactions can be lost, which means you could be liable for any losses as a result of unauthorized transactions or changes to your financial products and services.
How Open Banking Affects Consumers And Businesses
While open banking is not available in Canada, the government of Canada is working on making it available. If open banking is introduced in Canada, it can have an impact on several demographics:
- Consumers. Open banking will offer consumers more control, options, and security over their financial information and products/services.
- Banks. Financial institutions are free to develop customer-focused and customized solutions that will help them expand their consumer base.
- Businesses. Small businesses have more options, control, and security with open banking while taking advantage of innovative tools that can help them grow.
- Fintechs. Open banking gives fintechs the platform to develop cutting-edge financial products and service technology, based on consumer needs.
- Government. With the help of open banking, the Canadian government can provide security and consumer privacy within an evolving digital economy.
- Canadian economy. Open banking could have a positive impact on the economy by providing the government with the means to review corporate taxes payable by the financial industry. Ultimately, this can boost government revenue that will trickle down to consumers.
Open Banking FAQs
Is open banking available in Canada?
What is screen scraping?
Is open banking safe?
While open banking isn’t yet available in Canada, the government is currently looking at potentially introducing it in a safe and secure way. With open banking, you can enjoy the perks of fintech apps without worrying about who has access to your personal banking information.