Have you heard of Open Banking? Do you know about the security of your financial data when shared with apps? Or how banks in Canada are protecting your data?
Open banking is a secure way for you to share your financial data with financial technology companies (often called fintech) such as ReInvestWealth. Fintech apps provide online financial products or services to facilitate money management.
Open banking is not yet available in Canada, but it is available in other countries, like Australia, the UK and the majority of Europe.
Open banking is sometimes known as consumer-directed banking or consumer-led banking. Open banking is the term most widely used internationally.
So how do ReInvestWealth and other Canadian fintech companies access your financial data if Open Banking is not yet available in Canada?
Financial data is being shared through technological workarounds used by data aggregators. One of the most common methods to access financial data is called screen scraping. This alternative converts your username name and password into encryption keys which are used to access your data.
There are questions about the security risks of screen scraping but in general, the encryption used is powerful enough to protect against potential breaches.
The real problem with screen scraping is the lack of direct communication between banks and fintech apps even though the end-user is authorizing access and relies on such apps to manage money.
Banks often update their systems and break the screen scraping ability of apps.
The users cannot manage the 3rd party connections through their bank's interface.
Fintech apps are reliant on old technologies and cannot innovate quickly.
The stability and reliability of the financial data is not 100% accurate.
Screen scraping is not as secure as open banking.
How can open banking benefit you
Open banking doesn’t need screen scraping. Instead, you authorize your bank to securely share your financial data with the fintech app on your behalf.
What is the future of open banking in Canada
The Government of Canada began evaluating open banking in 2018. An advisory committee was creating to pursue the idea and will deliver their findings to the Minister of Finance by the end of 2021.
Whereas other countries have already implemented Open Banking successfully as early as 2018, Canada has been stuck in the review phase and might take another 2-3 years before even discussing the implementation of Open Banking across the country.
Delaying the roll-out of Open Banking in Canada will have negative effects on the growth of Fintechs in Canada and the evolution of financial technology in the country. Without stable and reliable data directly from the banks, it's increasingly difficult for Fintechs to provide a quality customer experience.