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Open banking: What it is and why it matters

This post was first published on April 11, 2019, and was updated on March 28, 2024.

We Canadians are losing money feeling trapped inside an archaic banking system. While we have the freedom to choose the best financial products from credit cards to savings accounts, we either don’t want the hassle of managing multiple accounts with different passwords or we believe the security risk to simplify the process with a third party-app is too high.

Big banks and credit unions have long held control of your financial data and it’s up to them to decide when and whom to share it with. This type of closed system does not breed competition, reducing innovation and leading to higher prices for banking services. Fintechs are looking to make progressive changes, allowing Canadians to make smarter financial decisions at lower costs. This requires an upgrade to the system, one where each of us decides how, when, and with whom we share our data. It will carry with it all the same security and protections that you expect. We as a country can achieve this with open banking. On April 16, 2024, the Canadian government will announce a framework to make open banking a reality during the Federal Budget discussion. Here’s what you should know.

What is Open Banking?

Open banking is a secure way for financial providers – think banks, credit unions, fintech startups, insurance brokerages, credit card providers, etc. – to exchange consumer information and data using a secure Application Program Interface (API).

An API is a software intermediary allowing two applications to talk to each other in the same language. If you search for flights online using, Expedia pulls the information from many airlines, each with their own API, and displays it in a format that makes it easy for you to comparison shop online. You can buy flights from one provider, hotels from another, but it all comes to you on one easy-to-read invoice.

In the banking world, we can find car insurance quotes or best mortgage rates, but we can’t merge the experience like Expedia all on one platform.  

Right now, if you opted to use a third-party app, like Borrowell for your credit score or Quickbooks for your taxes, to manage your accounts from different financial institutions, and all with one simple login, the risk is on you, not the bank. In other words, if your bank account is hacked as a result of this third-party app’s integration, there is no way for you to get your money back.

Say you want to use an app like – an all-Canadian app that tracks your expenses, categorizes them, and rounds up expenses to the nearest dollar and invests the spare change into your account. It works with all the banks and offers high-end encryption.

Sounds pretty good, right?

Well, if there is a security breach with your Quber account, and if access is granted into your bank account, then any losses incurred would be on you.

How it currently works

TD Bank, for example, has MySpend App and RBC has NOMI to help you better manage your money, but they are far from a holistic budgeting app because they don’t factor in savings accounts or credit cards with other institutions.  

In regards to security and fintech apps, TD Bank says on its website that “ the sharing of your TD credentials is contrary to the terms of our agreements, and TD will not be responsible for any harm that results from the sharing of your credentials.” In other words, you’d be responsible for losses if you share your banking credentials with a fintech app that gets compromised.

Canada does have insurance for your savings deposits – a whole organization known as the Canadian Deposit Insurance Corporation or CDIC.

The CDIC insures deposits up to $100,000 at each member institution (read: banks) per depositor (you) per insured category including, but not limited to, your savings, TFSA, and RRSPs.

There are some things they don’t cover – mutual funds and cryptocurrencies, for instance, are not covered.

Brad Evenson, Director, Communications and Public Affairs for CDIC reiterated that CDIC offers protection for consumers if one its member financial institutions fails. However, when it came to third-party apps you can use to better manage your money, he said that the CDIC, “does not cover fraud, including online theft,” he told via email.

In other words, you are not protected when using a third-party app to manage your finances.

Open Banking and the Department of Finance

The Department of Finance Canada has begun consultations on the merits of Open Banking (what they call "Consumer-Driven Banking"), what it might look in terms of security, and what role of the government should play.

The merits are many. The Department of Finance themselves say so themselves on their site. Among the many benefits for Canadians, they have listed the following:

  • "Secure access to a broader range of useful innovative financial tools;
  • Greater control over financial data;
  • More complete financial picture to improve financial outcomes;
  • Enhanced data security and protections for the digital economy."

We live in a country with strong banks, strict regulation, and powerful security that has kept us safe from recessions or mortgages crises.  Regulation and security cannot come at the cost of innovation. Canadians need to trust in Open Banking like they do their banks. Open Banking must support the safety and strength of the financial sector, not seek to dismantle it.

Open Banking around the world

Canada joins other countries like Japan, Australia, the U.K., and the U.S. looking at open banking to make a positive change for their citizens.

In the U.K., a government-led initiative has seen open banking launch that started initially with chequing accounts only. They too have a strong and trusted banking system and put out specific requirements for consumer consent, authentication and authorization. They also implemented a complaints handling process in the event of a security breach as it relates to open banking.

The United States has not yet adopted open banking. While some financial institutions provide access to vetted third-parties, there is not a whole or cohesive system in place. The U.S. Department of the Treasury has identified the need to remove legal and regulatory uncertainties currently holding back financial services companies and data aggregators from establishing data sharing agreements. It also notes that the U.S. market would be well served by a solution developed in concert with the private sector that addresses data sharing, standardization, security and liability issues.

How you can make a difference

Share this post on social media, talk about it with your friends, comment in the comments section below. We need an open discussion to take place. We need Canadians from across our great country to guide the way. What are your concerns? What possibilities do you see? What makes your financial future a little bit better?

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Photo by PiggyBank on Unsplash