- Mar 16, 2021
The global economy is undergoing a digital transformation accelerated by COVID-19. While technological advancements have allowed digital banking services to become more accessible than ever before, more recently, the idea of open banking has dominated policy discussions within financial institutions around the world.
In an event hosted by Ivey’s Lawrence National Centre for Policy and Management, Dean Sharon Hodgson sat down with Dave Forestell, Vice President, Office of the President and CEO at Scotiabank and member of the Centre’s Advisory Council, to discuss key insights, policy challenges, and the future of open banking in Canada.
Open banking has the promise to improve customer experience
The concept of open banking allows bank customers to provide permission to a third party, such as another bank or a FinTech company, to access their transaction data so that the third party might be able to provide a tool or advice to improve their banking experience. Forestell said an example of this might be a third party offering a lower-interest term loan to cover a customer’s debt on a credit card from another institution.
“That’s a simple example of something where there would be a good upside for a consumer through the use of data and information-sharing,” he said.
Privacy and trust
But to implement open banking in Canada, there are some considerations to keep in mind. One is the need for addressing digital and financial literacy issues. Another is privacy. Forestell said in addition to ensuring there are regulations and standards related to data protection, privacy, and security, it’s critical that the customer always gives consent to any sharing of data.
“At the end of the day, the most important thing is that the consent rests with the customer… it’s a relationship which is permissioned by the customer,” he said. “The word ‘trust’ is at the core of Canadians’ relationship with their banks. Canadians bank because they know that the money that they deposit with their institution will be kept safe and, increasingly important, their data will be kept safe. It’s not sold to other parties. We protect our customers.”
Lessons from other countries
Other countries have also been experimenting with open banking with mixed results, but there are some good models to follow. Forestell noted that, in the U.S., which has taken a market-led approach to open banking, large banks work with the FinTech sector and aggregators and set up technical standards through a joint governance model between both financial and non-financial institutions.
“In our view, that is ultimately going to provide the best customer experience because it’s responsive to the market. It balances the needs of financial institutions, which are principally around stability of the financial sector, with the more perhaps dynamic and innovative ability of small companies to put products on the market and reach customers,” he said. “Our view is a market-led approach is ultimately the right approach for Canada.”
Looking ahead to the future
When asked what the future of financial services might hold, Forestell suggested banks would work to increase their digital offerings, and online transactions would more closely replicate full-service in-person banking experiences. But ultimately banking and financial institutions would continue to be an important part of the financial lives of Canadians, he said.
“What we see is something akin to two similar offerings over time each with different characteristics associated with them beginning to pull out ahead … I think what you’ll probably see more of is a commitment to a digital-first mentality in large national and multinational banks … and on the digital side, I think you’ll increasingly see those banks beginning to build out the service offering to be a bit more full service,” said Forestell. “Ultimately, we want to be able to meet our customers wherever they choose to bank – whether that’s through an ATM, through a phone, in a branch, or on their laptops or mobile devices.”
The fireside chat was shared with student teams participating in this year’s Scotiabank International Case Competition. The competition features 80 students working in 20 teams from 14 different countries who analyze a real-world case on open banking.