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A digital future for Canadian banking

Lisa Rowsell
Lisa Rowsell
Managing Director, Canada

Open banking and the launch of a Digital Charter are among the initiatives set to transform the way Canada’s financial services sector handles customer data. Our forthcoming Toronto Refinitiv Summit will examine the opportunities and risks presented by a digital future for Canadian banking.

  1. Open banking and the Digital Charter are among the initiatives that could help to shape a more digital future for Canadian banking, with benefits for both consumers and financial institutions.
  2. For these digital transformation reforms to succeed, regulators and companies must work together to rethink the way customer data is used, managed and shared.
  3. The Toronto Refinitiv Summit will discuss what it takes to create a digital future for Canadian banking, including financial innovation, data regulation and information security.

Digital transformation has been a recurring theme voiced by the Canadian government throughout 2019.

What is commonly overlooked, however, is how Canada has fallen behind the EU, the UK and the U.S. in terms of regulating digitized products and services, and ensuring that companies enjoy a pro-business environment that enables them to thrive in today’s digital era.

Canada’s financial services industry epitomizes a national dilemma: The country is among the most future-ready markets, with high digital adoption, a thriving fintech scene, and increased access to private capital and government support for startups.

Yet laws governing data usage in Canada have undergone minimal change since 2001.

Canada’s Digital Charter

Earlier this year, Navdeep Bains, Canada’s Minister of Innovation, Science and Economic Development, unveiled the country’s Digital Charter — a set of ten principles which collectively aspire to unleash the potential of the nation’s digital economy while protecting citizens and businesses from information security risks.The 10 principles of Canada's Digital Charter

While no specific execution plan has so far been put forward, Innovation, Science and Economic Development Canada outlined the charter’s goals, which include, among others:

  • Prohibit extremist content.
  • Instill greater transparency about how personal data is used and how automated decisions are arrived at.
  • Promote fair competition, and advance innovation and businesses in Canada.
  • Ensure data de-identification.
  • Enable data portability between service providers.

Regulating digital transformation

The effective implementation of the charter will require regulatory changes to how companies use data, including the overhaul of Canada’s privacy law, the Personal Information Protection and Electronic Documents Act (PIPEDA).

Unlike its European counterpart, the General Data Protection Regulation (GDPR), PIPEDA does not currently include a clause on the right to be forgotten, which experts consider key to protecting consumers in an increasingly data-driven and digitized market.

Critics also question whether regulators have the ability to enforce the laws required for the de-identification of data — a complex process that is usually performed by the data controllers.

They also question the feasibility of creating a truly level playing field, given the vast resources Silicon Valley giants possess.

In addition, much of the financial sector might not be able to justify the costs associated with modernizing their systems and processes to comply with new regulations.

Given these issues, it’s yet to be seen whether the charter can realistically deliver on its goals, especially in the absence of a clearer understanding on its implementation and impact on Canadian financial institutions.

Watch: How will data and data analytics transform the financial services industry?

The future for Canadian banking

Data portability — one of the ten principles outlined in the charter — is key to advancing the concept of open banking in Canada.

A consultation document published by Canada’s Department of Finance earlier this year highlighted the nation’s digital readiness, as well as the desire of the government to put consumers and businesses in control of their data, and enable them to share banking information with multiple providers of financial services.

Open banking brings an abundance of benefits to the market.

It offers consumers and businesses greater oversight over their financial position, and better pricing of financial products and services. It also grants financial institutions access to a wider pool of new customers, with a holistic view of each individual, and encourages product innovation.

The Canadian government could look to the UK for inspiration, where the Competition and Markets Authority mandated Britain’s leading banks to participate in its open banking program.

Since its launch in early-2018, open banking in the UK has led to greater competition and product innovation across lending, investing and insurance. It has generated an estimated US$1.3 billion (CA$1.72 billion) for the UK economy, and has created more than 17,000 new jobs.

Open banking in Canada

Interest in open banking among banks and customers in Canada, however, is surprisingly limited, mostly because of privacy concerns, though recent studies found that the younger generation is more receptive.

One-third of citizens aged between 18 and 44 are open to sharing their financial data with third-party providers in return for better products or benefits.

With open banking set to launch sooner rather than later, providers of financial services, banks and fintech providers alike, must develop ecosystems that will enable them to capitalize on the opportunities greater data portability creates.

They must also prepare to address a myriad of risks: Security, fraud, privacy and financial exclusion are core concerns for consumers and businesses, while financial institutions must grapple with disintermediation and increased costs associated with open banking.

Toronto Refinitiv Summit

As the Digital Charter and open banking reforms progress over the next 12 months, the government and the financial sector must work together to ensure that the policies and regulations put in place will create an enabling environment for businesses and consumers to thrive.

For more information, download our Toronto Summit Industry Report