On today’s show we’re talking about open banking. If you’re in the banking industry and you’re part of their software development teams, you know all about open banking. But if you’re just a bank customer, you probably have not heard about this.

Open banking is a set of protocols and application programming interfaces that allow for third party financial technology companies to interface to customer data in a controlled way. This allows for partnerships with the bank to offer a wider array of product offers.

There are initiatives in the UK, Europe, Canada, and Australia. Strangely, the US seems to be lagging the rest of the developed world in these initiatives. On today’s show we’re going to look at what is happening in Canada, which appears to be near the forefront of these initiatives on a global basis.

You can think of new entrants in payments, banking, lending. Could we see Apple Mortgages, where you can apply for a residential mortgage directly from your iPhone? I believe the answer is yes.

What is open banking?

Essentially, open banking refers to the opening of internal bank customer data and processes to other parties through digital channels.

Some of the people I speak with foresee Apple Mortgages in the future. I’m not sure I want Apple to be my lender, but if they make it easy enough, maybe there will be a segment of the population who would be open to getting a home loan by interacting with their phone.

While FinTechs have been around for years, they played at the fringes of the banking system. If given access to the banks’ data, processes and infrastructure would help them build products and services on top of what already exists. Technology giants are also likely players in a world of open banking.  I believe the banks could be among the biggest winners of open banking if they, too, seize the opportunities it creates.

There are many potential applications of Open Banking. In one example, participants could use transaction data to assess the credit worthiness of businesses and consumers beyond solely relying on traditional credit bureau checks or financial statements. This would have the benefit of providing good quality information to a potential creditor without the negative credit rating impact of a credit inquiry to a rating agency.

Of course, any discussion of opening up banking records brings questions of privacy and security. The standards for access to records along with making the systems secure is of paramount importance.

Ensuring that the third parties who gain access to your financial records maintain security that is equal or better to the bank’s systems becomes paramount.


Host: Victor Menasce

email: podcast@victorjm.com