What You Need to Know about Open Banking
One of the more common newly advertised financial services on the Internet is open banking – the use of fintech apps to access financial services or products through a smartphone or tablet. Canadians do not yet have open banking available, but the UK, Australia and other countries allow the practice. At this writing, the Canadian government is studying how best to introduce this option safely to consumers.
What is open banking?
Open banking is also known as consumer-directed or consumer-led banking. Open banking allows you to share your financial information with financial technology companies, or FinTech’s. These companies provide apps that you can use on a computer, smartphone or tablet and are different from the mobile features that traditional banks offer. When you use open banking, your bank securely sends your information to the app for you through a secure online channel. You don’t have to give the app your banking login and password to get to the services and products that the open banking app provides.
What is the difference between open banking and screen scraping?
Screen scraping is a process that fintech apps commonly use to get to consumers’ financial data. The difference with screen scraping is that this process requires you to give out your banking login and password. This can cause problems because sharing that information with a third party could violate the electronic access agreement that you signed with your bank. Because of this, screen scraping involves several risks.
If you have shared your banking login and password with an app, you should change your passwords immediately. The apps now could have access to your entire banking presence, including your account balances, transaction history and other items. They could also make some very unwelcome changes to your bank account. The worst part is that since you gave them access, the bank might not give you its typical protection, leaving you responsible for all losses that occur because of unauthorized transactions.
What else do I need to know about open banking?
Access to online financial products and services without the security risks of screen scraping is just one benefit that open banking can provide for you. These include:
- Simplified demonstration of creditworthiness to potential loan providers with all data in one location
- Simplified and faster access to personalized financial products and tools, such as budgeting and product comparison apps
- Real-time access to all financial products, services, and accounts in one app
- Broader access to useful financial services and products
Using an open banking framework also allows you to control the security of your information. You get to choose which third parties receive your information, and how much information they receive. The concerns that the Canadian government still has about open banking revolve around a desire for:
- Common regulations among all industry participants to ensure universal consumer protection
- Accreditation processes before third parties can join the open banking network
- Technical specs that make data transfer efficient and safe
- Consumer consent for data transfer
In March 2022, Abraham Tachjian was tabbed to lead the establishment of Canada’s open banking framework. His work, which consists of consulting with consumer groups, industry regulators and banking representatives, will lead to a framework for Canadian consumers.
With the global open banking market projected to exceed $43 billion by 2026, though, mortgage brokers and lenders already have access to some of the tools of open banking. At Amansad Financial, our vendor for open APIs and OAuth is Inverite. Open APIs give brokers secure access to financial information, and OAuth helps consumers allow third-party providers to have access to their financial information. This technology is not yet available to Canadian consumers, but mortgage brokerages such as Amansad Financial use this information to confirm submissions from current and potential clients and to assess risk for potential loans and to minimize the potential for fraud.
In the very near future, open banking is expected to become available to Canadian consumers. Feel free to contact us to see how we might be able to serve your lending and/or mortgage investment needs.