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Canadian Banks 2019 Open Banking Is Coming pwc.com/ca/canadianbanks Canadian Banks 2019 Open banking is coming Open banking is coming 1 Table of contents 03 Welcome to Canadian Banks 2019 04 Overview 05 What is open banking? 06 What could open banking look like for customers? 07 A major transformation 08 What it all means 08 Banks 08 CEO spotlight 09 Customers 10 FinTechs 10 Regulators 11 Mastering security and privacy 12 The path forward for Canadian Banks 14 Appendix 1: Open banking around the world 15 Appendix 2: Industry snapshots 21 Contacts 2 Canadian Banks 2019 Welcome to Canadian Banks 2019 Canada’s banks have made huge strides in their digital transformations in recent years. They’ve invested heavily in new technologies that help them serve their customers better while making sure they have the risk management, cybersecurity and governance practices in place so they can successfully execute on their innovation plans. Amid all of that progress, several forces are combining to take the innovation push to the next level. Competition is increasing as technology players of all sizes seek to make their mark on the financial services industry. Consumers, who have come to appreciate the added convenience of digital services in many aspects of their lives, are now expecting similar experiences from their banks. And with concern about privacy breaches on the rise, customers are looking for more control over their own data. Jennifer Johnson National Financial Services Leader Enter open banking. It lets customers have increased control over & National Risk Assurance Leader their data while supporting the innovation everyone wants to see more of. With many regulators around the world keen to encourage more innovation and competition, open banking is a clear shift in the landscape that we can expect to see in Canada soon. Other countries are already ahead of Canada on that shift, so it will be important for the Canadian government and the financial services industry to learn from the experiences elsewhere as they look at how open banking would work here. Our 2019 Canadian Banks publication explores open banking in detail, including what it is, what it means for the various players in the financial services ecosystem and what the opportunities and path forward for Canada’s banks could look like. With data at the heart of open banking, we also look at the cybersecurity and privacy issues that will be central to its success in Canada. In addition to our exploration of open banking, you’ll find our annual Diane Kazarian snapshots of banking industry financial data and performance for GTA Managing Partner and National Banking and Capital 2018. We hope you enjoy the report and look forward to discussing Markets Leader the important issues affecting Canada’s financial services industry in 2019 and beyond. Open banking is coming 3 Overview Open banking is coming to Canada and will have Our research on the experiences of other a profound impact on consumers and the jurisdictions shows open banking offers a financial ecosystem. In its 2018 budget, the number of opportunities for Canada but also federal government announced that it was some challenges. For example, in the United establishing a committee to explore the merits of Kingdom, PwC findings show customers tend to open banking for Canada. As the concept gains prefer incumbent banks over other players to traction around the world and consumer manage their financial products, which is a good demands for increased convenience, price for sign for the biggest institutions in a more open value, data privacy and transparent consent financial landscape. drive a shift to new ways of doing business, it’s only a matter of time before open banking But with UK customers also showing tentative fundamentally reshapes the industry. interest in open banking and a modest launch of the new system so far, Canada would need to The introduction of open banking in Canada will make sure it learns from the experiences of other change how this country’s banks work with one jurisdictions, particularly when it comes to the another and with other players in the financial balance between encouraging adoption and services ecosystem. It will also be a major addressing the risks. transformation for customers as the banks, financial technology companies (FinTechs) and It’s clear the evolution of the financial services other service providers will be able to introduce ecosystem we’ve seen over the past few years innovative products and services based on open isn’t slowing down. In fact, 85% of CEOs access to data. participating in PwC’s 22nd annual CEO Survey ranked technological advances as the top trend Open banking presents a significant opportunity transforming their businesses. And as for Canada’s largest banks and mid-sized consumers’ habits evolve in response to digital players. Those with a clear vision of what role innovation in other areas of their lives, they’ll they want to play so they can continue to meet expect similar experiences from their banks and customers’ changing expectations will position other financial institutions. As the pace of change themselves for success. picks up, open banking raises the possibility of opening new doors for Canadian banks to Open banking also offers more opportunities for reimagine the future of financial services. FinTechs to collaborate with banks and other financial services providers. The environment has shifted as FinTechs increasingly move from being industry disruptors to serving as partners in the financial services ecosystem. Banks should see new partnerships as a way to introduce innovative products, attract customers, control costs and reduce risk. In Canadian Banks 2019, we dive into open banking to explore what its introduction in Canada could mean for our banks, their customers, FinTechs and regulators. 4 Canadian Banks 2019 What is open banking? Essentially, open banking refers to the opening of Open banking can take many forms, such as internal bank customer data and processes to “read,” “write” and “move” privileges: other parties through digital channels. It can include the secure sharing of customer- Open data authorized financial data with third parties or the distribution of partner-based products, such as Also known as the “read” privilege, open data those created by technology companies like involves the use of application programming Apple Inc., to bank customers. Open banking interfaces (APIs) to allow verified third parties to offers many possibilities to improve financial access customer data. Customers decide what services and the customer experience, ranging to share and with whom. from more straightforward uses like account aggregation and facilitating client identification to Open process a host of creative products and services to solve Also known as the “write” privilege, open customer pain points. process includes using open APIs to access Many of the ideas behind open banking have bank systems to initiate payments on a been around for some time, but it has only been customer’s behalf. in the past few years that policy-makers have started introducing regulations to move the issue Open products forward. A number of jurisdictions, including the Also known as the “move” privilege, open United Kingdom, the European Union and products refers to enhanced portability to make Australia, are now leading the way on the it easier, for example, for customers to switch opportunities offered by open banking (see page providers and move accounts. No jurisdiction 14). In September 2018, the federal government has mandated portability so far. took an early step by appointing an advisory committee tasked with producing a report Other considerations include whether assessing the merits of open banking in Canada. participation by banks is mandatory or voluntary and which products open banking applies to, In January 2019, the advisory committee such as chequing versus savings accounts, released a consultation paper that reviewed the credit cards, mortgages and personal or merits, potential benefits and ways to manage business loans. the possible risks of open banking. The paper is now seeking views on some of those issues as the advisory committee moves toward looking at implementation questions ahead of its report to the Minister of Finance. Open banking is coming 5 What could open banking BANK A BANK B BANK C look like for customers? 1 Open data In this scenario, a customer has authorized a third-party provider to read the transactions in her chequing accounts as well as investments held at other banks and asset management providers. Based on that information, the third party can aggregate the information, through its online platform, and is able to give the customer financial advice. 2 Open process BANK A BANK B In this scenario, the customer has authorized a third-party payments management platform to initiate payments on her behalf. The platform takes funds from the API customer’s bank account to pay her various bills on the date they’re due. Initiating payment... Pay bill 3 Open products In this scenario, the customer has gone to Bank B to switch her account from BANK A Bank A. Through open banking, the BANK B customer can initiate the switch without being physically present at Bank A. Her account at Bank A will be closed and the funds in it, along with all electronic funds transfer information, will be transferred to Bank B. 6 Canadian Banks 2019 A major transformation An important goal of open banking is to encourage experience through new products and services. It’s a more competitive and innovative financial important to note that for customers to buy into ecosystem. While FinTechs have been around for open banking, they’ll need to feel confident that years and played at the fringes of the banking there’s a proper balance between what both they system, access to the banks’ data, processes and and the banks are getting out of it.
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