Canada, previously lagging in open banking, recently announced new measures that could allow sharing of consumers’ financial data.

The federal government, fulfilling its promise to address open banking last fall, outlined in its latest budget that the Financial Consumer Agency of Canada (FCAC) will oversee and enforce the Consumer-Driven Banking Framework.

And they are aiming for full implementation by 2025.

This raises questions among banks and FinTech product owners – from strategy to implementation and more.

So, in this blog, we’ve covered everything related to it.

Canada Open Banking: Opportunities and Challenges for Banks and FinTech Companies

The Canadian open banking framework is still under development.

The specific details of how these questions will be addressed may change as the framework is finalized.

However, by understanding these key areas of focus, banks and FinTechs can begin to prepare for the future of open banking in Canada.

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What Are the Core Framework Elements of Canada Open Banking? Budget 2024

There are six core framework elements, including:

Governance: Oversight and management of the framework

Scope: The types of data and functionalities the system will provide, the participants, and the pace at which the system should expand

Accreditation: The requirements and process for participating in consumer-driven banking

Common Rules: To protect consumers and govern the areas of privacy, liability, and security

National Security: Safeguards to protect the integrity and security of the consumer-driven banking framework and financial system

Technical Standard: Establishment, maintenance, and oversight of a technical standard (also referred to as pipes) flow of data between Canadians and the financial tools of their choice.

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Which Open Banking APIs Will be Adopted in Canada?

The government will likely adopt standardized open banking APIs that are compatible with international best practices.

This might involve APIs similar to those used in the UK’s open banking initiative.

Who is Responsible for Building Open Banking APIs?

Primarily, it’s banks and financial institutions themselves that build open banking APIs.

These APIs provide a secure way for third-party developers to access customer financial data, with the customer’s permission of course.

However, there can be some involvement from other parties:

✅ FinTech firms may collaborate with banks to develop specific open banking APIs

✅ API development companies can be contracted by banks to build the technical infrastructure for their open banking APIs

What Are the Potential Partnership Opportunities Between Banks and FinTechs?

How Will Banks Ensure their Systems are Compatible with FinTech APIs?

✅ Implement API management platforms to streamline the creation, deployment, and monitoring of APIs

✅ Create developer portals for easy access to API documentation, sandboxes for testing, and clear guidelines for integration

✅ Modernize your legacy systems to better interact with APIs

✅ Partner with FinTech companies to develop and implement APIs

What Are the Technical Challenges of Integrating Open Banking Functionalities into Existing Systems?

It presents several technical hurdles – both for banks and FinTech product owners.

✅ Data security and privacy

✅ Connecting legacy systems with open banking APIs (that requires complex data mapping)

✅ Upgrading existing systems to handle the increased data traffic from open banking

✅ Navigating evolving regulations related to data privacy, KYC, and Strong Customer Authentication (SCA)

✅ Balancing strong authentication with a smooth user experience and providing adequate customer support

What Are the Potential Customer Concerns About Open Banking, and How Can We Address Them?

Canadian customers, like many around the world, might have concerns about open banking.

Here are some of the top concerns:

😐 Customers worry about unauthorized access, data breaches, and how their information is used

😐 They might be hesitant to use something they don’t fully grasp.

😐 Customers may be unsure about the trustworthiness of FinTech companies requesting their banking data

😐 The fear of increased vulnerability to fraudsters who could exploit open banking systems is a concern.

Addressing Customer Concerns

😃 Clearly explain open banking, its benefits, and the rigorous security standards in place

😃 Implement strong security protocols, including encryption and multi-factor authentication

😃 Give customers complete control over what data they share and with whom

😃 Stringent process for verifying the legitimacy and security practices of FinTechs requesting access to customer data

How Will Customer Privacy Be Protected Under Open Banking Regulations?

Here’s how regulations aim to protect customer privacy under Open Banking:

Explicit Consent: Customers must give explicit consent before their financial data is shared.

Data Encryption: Strong encryption standards are used to protect shared data.

Access Control: Strict access controls ensure that only authorized parties can access customer data.

Data Minimization: Only necessary data is shared with third parties, reducing exposure.

Anonymization/Pseudonymization: Customer data is often anonymized or pseudonymized before sharing.

Data Integrity and Security: Robust measures are in place to ensure data integrity and protect against breaches.

Transparency: Customers have the right to know how their data is used, with clear privacy policies.

Compliance and Oversight: Regulatory bodies oversee implementations to ensure privacy compliance.

How Will Existing Screen Scraping Practices Transition to the New API Framework?

Screen scraping, where FinTechs extract data by mimicking user interactions, is likely to be phased out gradually.

Here are some possibilities:

✅ Regulatory bodies might set a deadline for FinTechs to migrate to the new API framework

✅ Banks might offer incentives for FinTechs to switch to APIs, such as easier access to data or faster processing times

✅ As open banking regulations prioritize security, screen scraping’s inherent vulnerabilities might lead to a natural shift toward APIs

Here’s a comparison table between screen scraping and open banking APIs. 

What is the Role of the Product Engineering Company in Canada Open Banking?

We’re a product engineering company ↗️.

For over a decade, we’ve been helping banks and FinTech product owners to provide more dynamic and competitive financial services.

We know that open banking is on the horizon for Canada, and it’s here to revolutionize the financial offering landscape.

Once fully implemented, here’s how we can be your key player in this transformation.

So, are you ready to lead the open banking revolution in Canada?

Let’s connect!