Open Banking ...... "I don’t remember a less competitive time in Canada when it comes to consumer banking."

As a lifelong driver of competition and innovation in the US and Canada in consumer financial services, I have studied the “Open Banking” progress in Canada and around the world. On June 12th I attended the Open Banking Summit in Toronto, sponsored by Mastercard Data & Services a great partner of KOHO.

I left disappointed. But first a super-fast primer on Open Banking.

Open Banking is a financial practice where banks and financial institutions allow third-party providers to access customer data securely, with the customer's consent, using application programming interfaces (APIs). This enables new financial products and services to be created, fosters competition, and enhances consumer choice.

The ball started rolling in 2018 in the European Union where a new regulation required banks to open their payment services and customer data to third-party providers. Following the EU's lead, the UK launched its own Open Banking initiative in 2018. The UK’s Competition and Markets Authority mandated the nine largest banks to open their data to licensed third-party providers through secure APIs. Australia adopted in 2020 and no less then 40 countries have adopted some iteration of Open Banking concepts.

But Canada is not one of them.

Open Banking was designed to empower consumers and acknowledge that their financial data belongs to them and to foster financial product innovation and competition. All of which will benefit consumers. In all my years, I don’t remember a less competitive time in Canada when it comes to consumer banking. The result is that Canadians are paying some of the highest bank fees in the world. Despite interest rates skyrocketing on loans, most posted rates on savings are below 1.5% and could be as low as 0% if your balance is not big enough. See Rob Carrick’s article. 90% of mortgages, just like other financial products in Canada, are controlled by 6 banks.

The Lerner index allows organizations, like the World  Economic Forum, to compare countries in terms of how competitive their banking industry is and how this affects prices that people pay for these services.

Canada operated in a reasonable range until 2009 when our market efficiency collapsed. Today, Canada ranks in the bottom of the G20 - Japan, China, France, Germany, the United States, Indonesia—they all have more competitive consumer pricing in banking than we do. 

And none of these metrics factor in the recent acquisition of HSBC (7th largest bank) by RBC (1st largest bank) and the announced acquisition of Canadian Western Bank (8th largest bank) by National Bank (6th largest bank).

One of Canada’s most critical issues is its falling productivity rate and prospects for economic growth. When true competitive pressures are absent there is less innovation, application of technology, efficiencies and in the case of banks, less lending and lending at higher costs, all of which impact a country’s productivity.

What does this all mean? Canadians need Open Banking and I am proud to work with an organization like KOHO Financial whose customer focused tech savvy employees are creating innovative products, access to credit, affordable lending products and providing market leading savings rates. If Open Banking is permitted to thrive, it will certainly accelerate innovation and competition which in term will create transparency and true user focused products and services that will pave the road for Canadians to achieve their financial dreams.

As always, I would love to hear your views on the topic. Thank you!!!