When Eyal Sivan joined Ozone API as General Manager for North America earlier this year, it was a huge win for the company. Eyal hosts the hugely successful Mr. Open Banking podcast and has been at the centre of the open banking industry for over five years. So he’s kind of a big deal.
Not only is Eyal helping to drive the evolution of open banking forward with the podcast, he has also been instrumental in bringing Ozone API’s story to North America, assisting banks, financial institutions, and ecosystem enablers on their open banking journey.
Although he has a global presence through his podcast, his focus at Ozone API is on North America because he calls Canada home.
So when I wanted to dive deeper into the state of open banking in Canada, there was no one better to speak to than Eyal. I nabbed him to chat about the past, present and future of open banking in Canada.
Open banking
What is open banking?
“Open banking to me is fundamentally about the adoption of common, shared standards.” Eyal said when I asked for a definition.
“A lot of people talk about open banking in the context of customers owning their data, which is absolutely true and a big part of it, but fundamentally the entire banking ecosystem is moving to adopt an open set of standards for how they exchange financial data and move money around.
And that’s a really big deal because until now the way they traded data was proprietary. It’s costly for consumers and they don’t get the kind of transparency and benefit that they would with open banking.”
What does open banking help facilitate?
Traditionally, customers have had to go to their bank (e.g. the branch or mobile app) to access their account and manage their money. With open banking customers have more flexibility, for example to use specialised tools, to see and manage their money across all accounts, share information to get better deals and to access services in more ways. Ultimately, this drives more innovation and better outcomes.
Eyal explains: “Let’s say a person wants to switch bank accounts. Let’s say they want to share credit information. It’s all very unwieldy when open banking hasn’t been adopted. It’s all different from one bank to another. By contrast, open banking says no matter which bank you’re talking to, it works the same way.
If I want to capture your consent to share your data, it works the same way for everybody. And once you introduce open standards to something as important as the banking system, it’s like a sea change of what’s possible with your money.”
The beginning of open banking in Canada
A history lesson was needed for this one, so Eyal started at the very beginning: “The government first started talking about open banking in 2017, when they formed a consortium group to discuss the effect open banking would have on Canada. In 2018, the industry formed their own consortium. At this point the banks and Canadian government were questioning why they would want to introduce risk and instability.”
Eyal explained to me that unlike many other countries, Canada didn’t go through much of a financial crisis in 2008, and so while banks in other countries faced a crisis of consumer trust in the financial system and were under pressure to re-engage with them, Canada didn’t have this problem.
“A lot of the arguments for open banking in many regions, especially Europe and UK, were essentially a response to this lack of trust following the 2008 financial crisis. The banks felt they needed to empower consumers to have better control over their financial data. And so open banking was a way to redress the market. But not for Canada. They didn’t need to empower Canadian consumers.
Our big Banks saved our bacon. We did not have a financial collapse. There were no people losing their jobs, no mortgages affected. So in the eyes of the Canadian banks, they didn’t need to introduce any fancy new stuff.
Safety and soundness
Therefore in 2017, 2018, 2019, the Canadian banks and government were questioning why they would want to introduce risk and instability. Safety and soundness was what Canada was all about.
The evolution of open banking is subject to its environment. And in an environment where you have predictability and stability and safety, open banking sort of dies. In an environment where everything is a mess, open banking thrives. So in an environment like Canada that’s actually relatively stable, it doesn’t do so well. We don’t really have financial stability problems. We have innovation problems and competition problems.”
Consultations and reports
Then came 2019: “A year later the committee published a paper called A Review Into the Merits of Open Banking. It’s a very exciting paper published by the government talking about how great open banking is and how it should absolutely be something Canada does. The whole community suddenly went, ‘oh fabulous. We’re finally doing something. Look at this amazing paper.’”
“And then it drops into consultations for a couple of years.” Eyal said bluntly.
“In 2020, they released the findings of their first phase, again saying open banking is good, but also again saying that we have to balance this against safety and soundness. Eventually the Canadian banks see the US and Europe going ahead with open banking and start to feel that they have to start moving. And little by little, the Canadian banks one at a time start to feel the same way.”
Skip to August 2021 when the full report was finally shared commending open banking, Eyal explained it included clear timelines and next steps. The timeline said “Live date: January 2023.”
“You don’t have to be a technologist or a banker to understand that that was crazy. You dropped a report in August of 2021 and you think you’re gonna go live by January 2023. So on the one hand, people are very excited. We have a timeline and a date and I remember at the time even I’m saying ‘It’s okay, set the insane date and then miss the insane date, at least get everybody fired up, get the whole market moving and then miss the insane date by three to six months. You’re still doing really well.” Eyal said.
“The next step was to assign an open banking lead, which wasn’t done until March of 2022. It turned out to be Abraham Tachjian, who was the first guest of our fifth season of Mr. Open Banking, and a good friend. After a considerable amount of work wrangling together all the stakeholders in four key working groups, Abraham and his team finally completed their analysis and published the results in late 2023.
It is throughout this period where the market shifts. It was a trickle at first, but then eventually as people like Open Banking Expo started putting on events in Toronto, the smaller banks found their voice, and fintech activity ramps up. Next thing, the market is shifted. They want this now. We’re ready to go. And some of the major banks start making investments in it in a big way.”
Between 2017 and 2023, Canada’s open banking journey has ultimately been publications of papers, long periods of consultation and the assignment of an open banking lead, who completed and shared findings with the government in 2023. Finally, in the fall of 2023, the liberal government as part of their Fall Economic Statement announced that there would be a 2024 budget for open banking. So where is Canada now?
The current state of open banking in Canada
Fast forward to April 16th 2024. Eyal explained where Canada is currently on their open banking journey: “They released the budget, and it included open banking as promised, which is what Canada calls ‘consumer driven banking’.
That budget included one million dollars to the Financial Consumer Agency of Canada, then another four point one million to the Department of Finance to complete policy work. They also declared that legislation would be coming in the spring and then an additional round of legislation to be coming in the fall.
The good news is as part of that budget announcement they released considerably more detail on what we can expect in terms of which accounts are going to be shared.”
How can banks in Canada benefit from embracing open banking?
Open banking is a win-win for everyone involved. Whether you’re the customer, a bank, a Fintech, a Third Party Provider (TPP); open banking benefits everyone equally. There’s a plethora of reasons banks should embrace this movement and be part of the ecosystem. But do the benefits vary for each country?
“Open banking benefits are radically different from one place to another and the key targets all depend on the region; what their goals are, what relationship they have with their banks, and even just the traditional feelings of the domestic culture can affect those choices. So how they feel about things like cash, how they feel about things like corruption and so on.” Eyal said.
But let’s look at Canada specifically. Eyal explained that for Canada, in order of importance, risk reduction, global competitiveness and customer satisfaction are highlighted by the Canadian government as the benefits of open banking. And the order of those priorities is quite Canadian, I’m told.
“It’s completely different when you go somewhere like South America where it’s about financial inclusion and supporting the underbanked and the unbanked, it’s a totally different language.” Eyal said.
“For Canada, if you ask the government, they would say primarily it’s about risk reduction; they would use the term ‘safety and soundness.’ For example the elimination of screen scraping, which is used by some astounding number of Canadians.
In a country of 35 million or so people, we see screen scraping being used by something like six to nine million people, which is sort of ridiculous. It’s of course systemically dangerous, you now have these passwords floating out there and credentials floating around and creating honey pots, and if hackers get to the wrong place they can steal a bunch of passwords, but also there’s nobody who’s liable for that from a financial perspective.
There’s also the risk aversion when it comes to KYC and MLS requirements, and being able to avoid bad players, bad loans, terrorist financing, which is the whole safety and soundness aspect that the Canadian government talks about.
Then you’ve got competition and maintaining global competitiveness. It has been loudly proclaimed by the Canadian government that Canada is falling behind in terms of international competitiveness and that we are behind our G7 peers. Open banking is seen as part of a larger digitalisation effort in Canada, whether that’s embracing AI and so on, and will help bring us in line.”
Eyal went on to explain that there are many other benefits such as being able to level the playing field and increase domestic competition. Banks would also be able to increase customer satisfaction as a result of offering better financial products to consumers, ultimately leading to more affordable, more effective banking, and really get the most out of their money.
What does the banking future look like for Canada?
“Generally speaking, the market is now united. Whether it’s fintech or small banks or credit unions. All of them would like to see clear open banking regulations and guidelines set out.
At the moment, in the absence of that, they have been hesitant to really commit wholeheartedly. They’ve been doing a lot of preparation. They want to see it happen. They’ve been talking about strategies. They’ve been putting some of the systems and APIs in place, but they’re not going to go all in until the government finally declares the rules of the road. We’re sort of in a sit and wait situation, but the good news is the market is eager to see it happen.
When Canada was at the start of its open banking journey it seemed the shift didn’t happen so swifty because the need wasn’t seen, but now ultimately it seems uncertainty is the main blocker in Canada, as the market waits for the government to set out clear regulations.
In the 2024 budget, they crucially promised legislation for spring and then another round in the fall. So once again, fingers crossed to the open banking gods that something material is going to be in this legislation and that it is in fact passed. ” Eyal said.
Maybe being late to the party isn’t such a bad thing for Canada. Could they learn from the mistakes other countries have made and not repeat them or will they continue to be mired in uncertainty? Will the regulatory framework come soon? Either way, it’s exciting to see that Canada is dipping their toes way further into open banking pond than they have ever done before.
Want to know more about open banking in Canada, or need support on your open banking journey? Get in touch with Eyal Sivan via Linkedin or book a meeting to discuss further.
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As part of our Open Banking Global Tour, we’re virtually travelling around the globe to do a deep dive into where counties are within their open banking journey. Explore other countries we’ve explored so far:
• Open Banking in Africa: Perspectives from Nigeria, Ghana, Egypt and South Africa
