The Open Banking wave is picking up speed in Canada. The Advisory Committee on Open Banking, in its final report, said an Open Banking system is achievable for the country by January 2023, and the government is moving to make that a reality with its recent announcement of an Open Banking lead. The transition of the banking system is an estimated $10 billion opportunity for Canadian banks.
As we’re witnessing, the open data economy (the backbone of Open Banking) is reaching different shores at different times, and in diverse shapes and sizes. Europe’s third-party providers (TPPs) grew from 100 to more than 450 in under two years, while America’s Venmo went from 10 million users to 40 million in just two years. Spain’s BBVA is claiming its place as an Open Banking leader as it connects with clients on other platforms shown through a partnership with Uber.
Amit earlier shared his recommendations for how banks can prepare for the sea of change that Open Banking will bring. Together, we’re looking at these recommendations with a Canadian focus.
Our research in Canada shows that 76% of banks expect customer adoption and Open Banking API usage to increase by 50% in the next five years. Change is coming. Here’s how Canadian banks can prepare:
1. Become a data custodian
Accenture research identified Canada as a market with digitally-enabled consumers who are more open than others to new digital ideas. Therefore, banks should prioritize data management capabilities to help ensure consumers receive value for sharing data.
Banks should also consider how to bring their expertise in looking after customers’ money to the custodianship of their personal data.
The good news is banks are naturally positioned for this shift, especially in Canada where customer trust ratings are strong. In the 2020 Banking Consumer Study by Accenture, 44% of Canadian respondents indicated that they trust their bank “a lot”.
For banks to build customer trust in personal data custodianship, they must focus on:
- Credible data that is properly collected with customer consent to share.
- Safe storage for customer data with secure processes and infrastructure.
- Data stores with data identification, categorization algorithms, machine learning capabilities, and data audit mechanisms.
2. Master data management and analytics
As the custodians of customer data, Canadian banks should consider how they can use this information to create compelling new offers that add value for customers. Others are likely to move in quickly, so delays could be costly.
Consider the personal financial management (PFM) fintechs leading the way in aggregating data across multiple sources. Mint brings together spending, balances, budgets and more for customers to “access their financial lives in one powerful app”. Quicken brings a similar promise as “one solution to manage all your finances”. Moving forward, banks will need to prioritize the management and integration of external sources.
Furthermore, our research found the share of Canadian customers who rely on neobanks to be comparable with the US, but significantly lower than Japan and China. Open Banking advancements will influence neobank activity, helping them bring new services and products to market.
Now is the time for Canadian banks to look at processes and systems that improve the collection and use of data from external sources. Additionally, I suggest investing in advanced analytics tools and supporting the democratization of data with change management and training. Banks can consider new roles, such as ‘data hunter’, to identify new sources of data.
For banks to master data management and analytics, they should focus on:
- Developing a common framework for capturing, organizing, integrating and maintaining data.
- Integrating data stores, data identification and categorization algorithms, machine learning capabilities and data audit mechanisms into customer offers.
- Building data catalogs for use across the bank.
3. Source partnerships
Next, we want to stress the importance of partnerships in Open Banking. Having the right partners is key to success.
Looking at others leading the way, we can point to the Open Banking partnership between American Express and Tink in Europe. Integrating Tink’s technology into the American Express application process allows “prospective card members to seamlessly connect to their bank accounts and instantly verify their identity, income and account information.” This removes the need for American Express customers to manually enter their details, saving time and creating a better customer experience.
Additionally, CIBC has reduced manual data entry and boosted efficiency for business clients through the SmartBanking for Business platform. With secure, two-way data integration between CIBC, cloud accounting software companies Intuit Canada and Xero, and payroll software company Ceridian, a “business owner can see their complete financial dashboard including upcoming payroll details, pending invoices and receivables, as well as access their day-to-day banking.” CIBC was able to expand its offerings through these strategic partnerships.
Like CIBC, Canadian banks can work closely with potential partners to understand their business, the data they wish to offer and access, and their integration challenges. In some cases, challenger banks are more agile because they’re already working on API infrastructure to connect with partners. Banks can strengthen their competitiveness by directing time to develop strong partner connections.
To drive partnerships successfully, banks should focus on:
- Creating an accelerated onboarding process to ensure partners can quickly start delivering value.
- Identifying and measuring KPIs such as revenue per partner and partner satisfaction.
4. Ensure trusted security
Trusted security is a prerequisite for Open Banking success. We continue to see API security emerging as a particular priority.
In an Accenture survey, 75% of respondents were wary of the Open Banking concept, citing concerns about the privacy of their financial data. However, 71% said additional security measures (such as authentication passwords, biometric technology or real-time analysis of payments) would help address these concerns.
It’s important to implement APIs with proper version control and lifecycle management processes. This discipline will avoid issues with ongoing API management, especially keeping in mind different environments across channels and legacy systems.
For banks to prepare Open Banking security measures, they should focus on:
- Building an application delivery controller infrastructure, web application firewalls and dedicated API gateways.
- Using bot mitigation to protect public APIs from misuse.
- Planning the cloud journey, starting with dev and test environments in the cloud.
So, in what ways and how quickly will Canadian banks focus on these areas to prepare themselves and ride the Open Banking wave? The opportunity is growing, and Canadian banks are distinctly positioned to shape and capture it.
Open Banking is almost here, Canada. It’s best to be ready.
Let’s work together to prepare for the Open Banking opportunities coming to Canada. Please connect with us:
Also, we encourage you to visit the Accenture website to download our full report, “Catching the Open Banking wave. ”
Special thanks to Ly Nguyen, Accenture Senior Manager – Canadian Blockchain Capability Lead, Hannes Fourie, Accenture Research Lead – Canada, and Jacob McGonigal, Accenture Consulting Analyst, for contributing to this blog.