After the United States (US) made its biggest move yet toward establishing an open banking system, Canadian FinTechs continue to receive pushback against a proposed Canadian system years in the making.
On Oct. 22, the Consumer Financial Protection Bureau finalized rules for an open banking system in the United States. While a welcome announcement for American FinTechs, for some Canadian companies, it was a rude reminder the federal government continues to drag its feet on implementing its promised framework.
Several FinTech leaders in Canada have expressed their discontent with the current banking infrastructure, which relies largely on screen-scraping to share consumer financial information from bank accounts to third-party platforms. Open banking legislation would formalize a secure way for customers to consent to sharing their banking information through an application programming interface (API). It would also compel Canadian banks to share the information upon customers’ request at no cost.
In April as part of Budget 2024, the Canadian government unveiled the latest step in a process that started in 2018: a commitment to advance a Consumer-Driven Banking Framework. Public consultations for the framework, which are being overseen by the Financial Consumer Agency of Canada (FCAC), ended in September. However, a date for further legislation has yet to be announced. And Payments Canada told BetaKit that industry testing for the Real-Time Rail payment system—another important component of banking modernization—would only begin in 2026.
“Let’s stop with the fear-mongering and get going with the work of putting a system in place.”
FinTech startups, particularly those that serve small and medium-sized businesses (SMBs), are renewing calls for open banking legislation to finally be implemented in Canada. And discourse from the establishment banking community has only added fuel to the fire.
An op-ed by John Turley-Ewart, recently published in The Globe and Mail, argued that open banking’s delay in Canada is in part due to the longstanding stability of Canada’s banking system. Turley-Ewart is a principal at Regulatory Risk Management Inc. and his clients include RBC; the crux of his argument is that larger financial institutions acquiring more market share has led to more stability in banking, which open banking could disrupt by increasing competition with smaller players.
The article was met with swift pushback from FinTech leaders.
Andrew Graham, co-founder and CEO of Borowell, called the argument a “zombie idea” in a LinkedIn post responding to the op-ed.
“The rest of the world has moved ahead with open banking—so far without bank failures or zombie apocalypses,” Graham wrote. “Let’s stop with the fear-mongering and get going with the work of putting a system in place that will make banking more secure and life cheaper and easier for consumers.”
“I struggle to make sense of the idea that subjecting financial data sharing to more regulatory oversight, as well as a range of privacy-protecting, security-enhancing, and liability-allocating requirements, will make things more risky,” Alexander Vronces, executive director of Fintechs Canada replied in a comment.
Rob Khazzam, CEO of FinTech company Float, also spoke out about how open banking rules would increase innovation through competition and data portability.
“It’s this anti-competitive stance that has saddled Canadians with not only some of the highest prices in the G20 for banking, but also for telecom and groceries,” Khazzam wrote in an email to BetaKit. “It limits real choice and progress. Canada deserves financial solutions that don’t just serve incumbents but empower businesses and consumers to thrive in a fairer, more dynamic market.”
At Elevate Festival earlier this month, FinTech leaders drove home the connection between open banking and innovation, with some arguing that Canadian providers won’t be able to properly compete with other markets that have moved past traditional banking.
Vronces said that the US decision drives home the need to implement an open banking system that meets the needs of consumers and FinTech companies.
“Otherwise, they’ll look south of the border. I’ve lost count of how many Canadian fintech entrepreneurs are pessimistic about their prospects here and more optimistic about their opportunities in the United States,” Vronces wrote in an email to BetaKit.
But Vronces is sceptical that this will come together in 2025. There’s still the matter of approving recipients of consumer data and setting up the secure data transfer via API.
Open banking primer
Canada has been on a long and winding path toward open banking since 2018. This collection of stories will catch you up on progress to date:
- FinTech startups frustrated with glacial pace of Canada’s open banking consultations
- Open banking working group failing to address critical governance, standards issues
- Canadian FinTech companies launch open banking public action campaign as delays continue
- Wealthsimple’s Hanna Zaidi on the “lack of political will” harming FinTech innovation
- Payments Canada reveals no Real-Time Rail until at least 2026
- FinTech leaders say “devil is in the details” with #Budget2024 open banking promises
Despite differing perspectives on open banking, Turley-Ewart agreed that the much-anticipated framework will likely come later than 2025.
In an email to BetaKit, Turley-Ewart said that current political issues within the federal government, coupled with recent money laundering scandals such as that of TD “are likely to push Open Banking back until after the next federal election at the earliest.”
“Without proper supervision, monitoring and controls, the implementation could generate new risks for the country’s financial system,” he wrote. “The extent of the risks appear to have become evident to policy makers and may explain the ongoing Open Banking delay in Canada.”
Vronces explained that now that legislation has passed, the FCAC will have to establish regulations and then rules on supervisory guidance. Before the system can get up and running, the FCAC will also have to build out its enforcement capacity.
However, he believes these regulatory steps are being taken with the best interest of consumer protection in mind.
“If anything else were in mind, […] our financial consumer protection watchdog wouldn’t have been picked as the regulator and the government’s premise for reviewing the merits of open banking wouldn’t have been to eliminate screen-scraping,” he said.
Movement on that front has also stirred up controversy. The Logic reported last week that Symcor, a tech company co-owned by Royal Bank of Canada, the Bank of Montreal, and TD Bank, is piloting a program called Cor.Connect. This program would allow data connectivity between banks and FinTechs; however, it’s unclear whether Symcor could charge FinTechs to access the information.
When reached for comment, the FCAC referred BetaKit to the Department of Finance. An official spokesperson said that an expectation set out in the Consumer-Led Banking Framework is that Canadians will not have to pay to access or share their financial data.
“This will enable the safe and secure transfer of data and will assist all consumers of financial products and services, including small businesses,” the spokesperson wrote. They did not provide a timeline for future legislation.
SMBs feel the squeeze: report
One of the key consumers that stand to benefit from open banking are not consumers at all, but small businesses, according to Khazzam.
Float, which offers corporate cards and expense reporting for businesses, released a survey and accompanying SMB Manifesto offering a bleak portrait of financial infrastructure for small to medium-sized businesses. The report notes that many are struggling with managing their finances, particularly due to payment wait times and inadequate financial management tech.
“I think we have to have higher standards. I think the government and all the stakeholders involved have to look and say, ‘What’s taking so long?’”
Rob Khazzam
Float CEO
One in four SMBs report having inefficient financial processes or systems, and half of all SMBs admit to spending up to 40 hours per month on payment-related services, the report found. Meanwhile, 65 percent of SMBs that experience long processing times for financial transactions also struggle with insufficient cash flow.
Open banking, Khazzam said, would make payment processing and access to capital more efficient and allow small SMBs to focus on innovation. He noted that the report found a 60-percent failure rate for SMBs established within the past five years.
He said that businesses in Canada strive to make things easier and faster for consumers, but that same standard is not applied to businesses themselves—and certainly not from the government.
“It was pretty jarring to see just the scope of the challenge,” Khazzam said in an interview with BetaKit. “What really resonates to us is this feeling right now in Canada [that] everything takes time.”
“As an early-stage company focused on growth, we don’t have time to waste navigating outdated processes or chasing down paperwork,” Madelaine Fielding, a corporate controller at Float customer Makeship, wrote in a statement. “We need financial services that work with the same speed and purpose we do—efficient, streamlined, and ready to support our growth.”
According to Khazzam, the delay in open banking is yet another force squeezing SMBs and disincentivizing entrepreneurship, in addition to the proposed capital gains tax hike and the productivity gap.
“I think we have to have higher standards. I think the government and all the stakeholders involved have to look and say, ‘What’s taking so long?’” Khazzam said.
Feature image courtesy Nathan Wright via Unsplash.