Open banking is a term that is being thrown around a lot lately, but what does it mean? And, more importantly, let's find out how much money your small business can save!
Canada is one of the countries leading in open banking. An early adopter of open banking, Canada will likely fully embrace an open banking system.
At the time, we said that this would be a significant step forward for Canada's open banking ecosystem. And it looks like our prediction is coming true!
The report also says that the government is planning to introduce new regulations for banks, which will make it easier for them to offer innovative services.
What Exactly is Open Banking?
Open banking is a term used to describe a system in which banks make their customer data available to authorized third-party providers. It allows customers to share their financial data with trusted organizations, such as fintech to receive better products and services.
The definition of open banking may seem simple enough, but the implications are far-reaching. Open banking has the potential to revolutionize the way we bank and how we interact with our finances. It can improve transparency and competition in the financial sector while also providing more choice and flexibility for consumers.
Open Banking in Canada: Challenges, Predictions, and Opportunities
Implementing open banking will be a considerable task for Canada's financial authorities. One of the biggest challenges to be resolved is who may participate in open banking, primarily who can utilize bank APIs to access and use consumer data. Other considerations include client permission regulations and the many privacy issues tied to open banking.
We predict that open banking in Canada will begin slowly and progressively in trend, with limited usage and open-data obligations initially applied to the country's largest banks. The uses will likely increase over time, particularly as the financial sector and authorities in Canada gain knowledge from international jurisdictions.
As open banking becomes more popular, the regulations that apply to it will also change. For example, banks in Canada are subject not only to federal rules, but additionally, each province has its own set of standards for how they can operate and what data needs to be collected from customers who deposit funds into accounts or use bank loans/credit cards, etc. Meanwhile, credit unions fall under stricter provincial legislation, which may differ significantly depending on where you live within our great country. The Privacy Commissioner will have a significant role in this process, and Payments Canada, too.
What are Some Examples of Open Banking?
Fintech companies have been around since 2011 when PFM (Personal Financial Management) applications were first introduced in Canada by Mint and Learnvest as an alternative way for users to manage their finances online through mobile apps instead of going into brick-and-mortar branches or calling up call centers on phone lines, which take way more time than today's digital solutions provide. At the time, it was an early adopter advantage to have these PFMs integrated into one's banking routine and granted users more insights and transparency when their bank statements arrived in the mail.
Fast-forward to 2019, where a good number of startups, tech companies, Telco, credit unions, and banks are vying for a piece of this open banking pie with various solutions from account aggregation, card-linked offers, or even full-blown neo-banks that are built on available banking principles. The race is heating up as we see incumbent financial institutions being disrupted and challenged by insurgent fintech and regulators who want better customer outcomes and increased innovation and competition.
Why Should You Work with Us At ReInvestWealth?
The Worthy Benefits of open banking for Businesses:
Our ReInvestWealth platform brings many benefits for businesses and consumers regarding open banking, including:
Easier Access to Capital
One of the enormous benefits of open banking for businesses is that it makes it easier to share financial data. By sharing bank transactions with the ReInvestWealth app, companies can quickly automate tedious accounting tasks such as bookkeeping, preparing financial statements, filing taxes and more, which increase chances of getting approved for loans and other types of financing. It can be a significant advantage, particularly for small businesses that may have difficulty obtaining traditional financing. Set a free appointment with us at ReInvestWealth today to find out more about how ReInvestWealth could help prepare financial statements for your small business.
Better business Insights
With open banking, businesses have access to a wealth of information about their spending habits. This data can create detailed spending profiles and better understand which expenses are impacting the bottom line.
Improved Financial Planning
Open banking also makes it easier for businesses to plan their finances. By sharing data through the ReInvestWealth app, they can get a more accurate picture of how much money is coming in and going out each month. It allows them to make better decisions when it comes time for budgeting or other financial planning activities like setting up an emergency fund. To find out more about how open banking can help your small business create a financial budget book a free appointment with us at ReInvestWealth.
Open Banking: Top Benefits For Consumers:
Greater Financial Control
Open banking gives consumers greater control over their finances by enabling them to access account information from various sources. They are no longer limited to only what the big banks provide; instead, they have options, such as mobile wallets, that allow you to manage all your accounts in one place! These tools give people peace of mind knowing where every dollar goes, so there's no nasty surprise at the end of the month.
Easier Money Management
Along with having more control over their finances, open banking makes it easier for small business owners to manage their money. With access to account information from different providers, they can easily track how much is spent in each category (e.g. marketing, payroll, etc.). It helps entrepreneurs stay within their budget and avoid overspending.
Better Financial Planning
Open banking can also help entrepreneurs plan their finances better. Having access to detailed information about their spending habits can identify areas to make changes to save money. Additionally, this data can create a budget and track progress towards financial goals.
As you can see, there are major benefits that open banking can provide for small businesses and consumers in Canada.
What are the challenges of open banking?
While there are many benefits to open banking, there are also a number of challenges that need to be overcome.
One of the biggest challenges is ensuring the security and privacy of customer data. Banks need to ensure that their systems are secure enough to prevent unauthorized access by third-party providers. Customers need to feel confident that their data will not be abused, hacked, or shared without consent.
Another challenge is overcoming resistance from incumbent financial institutions, which may feel threatened by the increased competition and innovation that open banking encourages.
Open Banking: How FinTech Apps are Revolutionizing the Financial Sector
Open banking represents a substantial potential for fintech. Access to consumer data enables them to develop innovative products and services, such as collaboration and networking that simplify financial planning and advising, as well as services that allow users to compare product characteristics, such as fees and interest rates, among other financial institutions. Fintech companies can broaden their reach by developing services that address a specific client's demand or problem.
However, to genuinely expand their reach, fintech should consider the enlarged prospects for collaboration with banks that open banking provides. In some circumstances, banks will pursue strategic acquisitions of fintech companies to complement their offerings. In other instances, banks will grant access to their systems to fintech that have been verified as trustworthy and valuable partners to augment their offerings and provide a better client experience.
However, before they reach that stage, banks must evaluate which partnership models work best for them, determining when to retain control of some aspects of the client journey and outsource commoditized components to third parties.
Open Banking In Canada: Final Verdict
So, what's the verdict? Is open banking in Canada ready for prime time? The answer is a resounding yes. Canadian small businesses and consumers are already taking advantage of the benefits of open banking, and more providers are coming on board all the time.
Every Canadian small business owner should be looking to add open banking to their list of essential accounting terms in their lexicon.
Whether you're looking to budget for your business, get a better deal on a mortgage or line of credit, or invest your money wisely, open banking has a lot to offer. It's clear that the future of finance is open, so why not join the revolution today?
If you're interested in learning more about the basics and a thorough understanding of open banking, don't miss out on reading our article "Open Banking in Canada" by ReInvestWealth.
If you have any other questions regarding open banking and/or online accounting, feel free to set an appointment with us at ReInvestWealth. We would be more than happy to help you!
Written by: Hassan Tanveer
ReInvestWealth Founder and CEO: Behdad Karimi Dermeni