Are you happy with your bank? This is not a question we usually ask ourselves, but why isn’t it? Banks act as the guardian of our money so it would make sense that we often look at how happy we are with their services. With only a few banks out there however, we don’t have a lot of choice about who we bank with. As a result we tend to stick with the banks we are familiar with, not always the ones with the best services. Now don’t get me wrong Canada has some great banks but, the market really is not all that competitive. Cue open banking.
What is Open Banking?
Open banking is a system that allows individuals and businesses to share their financial information with third parties. These third parties can be financial planning apps, automated accounting tools, loan officers etc. The idea is that by making the sharing of financial information easy and accessible, new financial offerings will form and raise competition and innovation in the market. As a result, companies will have to offer better and more affordable services to gain customers.
How Does it Work?
Open banking works by using something called Application Programming Interfaces, or APIs. These APIs are tools that allow banks to easily share data with third parties. APIs also make sure data is being shared safely so that no unwanted parties can gain access.
To get your data, third parties will need direct consent. So don’t worry, you don’t have to use open banking if you don’t want to!
How Will it Help?
Open banking will make managing money easier and cheaper. This is done by letting third parties come in that will help people better understand and control their finances.
Here are a few of the ways open banking can help both businesses and individuals.
For businesses
- Boost efficiency and lower costs by automating accounting systems using new bookkeeping tools
- Automate financial processes like payments, receivables processing and audit preparation.
For individuals
- Use financial planning apps that will look at your banking data and suggest great products for your specific needs (i.e. credit cards, mortgages, loans etc.)
- Combine all your banking information in one place so you can get a complete overview of your financials
- Easily move money between accounts at different banks
- Automate payments
Open Banking in Canada
For now, Canada is taking the first steps to bring open banking to the market. In September 2018, an Advisory Committee on Open Banking was chosen and in January 2019 the Department of Finance launched a public consultation on open banking. This means that Canada is looking to understand how to best use this new banking model. It will take some to decide on how to best use and regulate open banking and consequently, these services will likely not be ready for a few more years.
In today’s wave of disruption, banking may be next on the hit list. As a result, Canadians can soon look forward to more options and better services with open banking!
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