Navigating open banking in Canada: Applying new strategies and tactics to thrive

In this eight-part article series, we explore Canada’s journey to implement an ‘open banking’ system, the first phase of which is set for launch sometime in 2023. This is the third article in the series.  

As Canada advances towards an open banking system, many people are wondering what the early returns of this transformative process might look like?

Open banking is expected to transform the financial services marketplace, but it won’t happen overnight. Speed of growth and innovation in the open banking industry, including consumer acceptance, will be years in the making.

The changing landscape will create opportunities and intensive implementation-related complexities for the industry. In practice, many companies will face significant challenges in navigating the rapidly evolving marketplace and executing new strategies and tactics to survive. So let’s take a look at the pivotal roles and key success factors of three main players: banks; fintechs; and the Canadian government.

Success factors for traditional banks

As argued in previous articles, we believe the banks are well positioned. They are not limited by a lack of innovative ideas. Rather, they will be challenged to collaborate with other companies in new ways and deploy growth strategies in a more timely and effective manner than they may be used to. To succeed, we believe the banks need to:

• Think big and far – Banks must identify the opportunity and competitive play in open banking rather than just implement it as a compliance obligation. Open banking should be a transformational journey in which banks reinvent themselves, and their value proposition, in today’s customer-centric marketplace. Banks have to be proactive, and recognize that open banking is not a one-step change, but rather a continuously evolving process that will lead to broader open finance and a hyper-personalized open economy.
• Choose the right business model and monetization strategy – These will be driven by what the bank wants to achieve through open banking. Higher revenue? Customer satisfaction? Customer retention? New market entry? Competitive positioning? Or a blend of all of these? Whatever the path chosen, it should be in line with the bank’s objectives and growth aspirations, and it should evolve over time.
• Select the right partners – Smart collaborations will be key. Banks should partner with a wide set of fintechs, data aggregators, API providers and peers that are best suited and aligned with their bank’s strategic objectives and growth model.
• Create offerings to win digital-first customers – Winning the financial consumer of the future requires that banks stay relevant. Testing and building new types of products, services and features for the digital economy is all a part of the game to achieve excellence and leadership in the market. That means being on top of what’s happening in local, national and global markets, especially when it comes to lessons learned from countries and banks further along in their open banking journey.
• Protect customers – Banks must maintain their leadership in data protection, by ensuring a secure infrastructure for storing and sharing data across industry sectors and aligning open banking adoption with digital ID and data management. This is crucial to maintain customer trust and counter fraud. On the flipside, open banking is the start of a hyper-personalised market with target offerings per customer need or segment, which means having data cleaned up, segmented and aggregated.
• Future-proof their operations – The road ahead is a long and potentially bumpy one, so preparing now is essential. Banks must build internal IT capabilities and ready their employees and leadership for a digital future, lean processes and an agile culture. To be API-ready, banks need to invest heavily in the digital future, with continuous effort in eliminating operational redundancies, inefficiencies and legacy systems.

Where must fintechs focus?

Open banking holds unprecedented promise for fintechs. How can they best capture the opportunity?

To fully harness the potential, fintechs should heed some of the same criteria discussed above. However, the long-term success of fintechs in the new financial ecosystem hinges on other factors too:

• Maintain a financial innovation focus – Fintechs are well-known disruptors, having already introduced a wave of digital financial innovations in recent years. Going forward, it is important for fintechs to steadily supply digital innovation in financial services, create solutions that respond to customer needs, deliver efficient data aggregation and management, and continue to revolutionize banking, insurance and personal financial management.
   
• Serve the underserved – With the ability to mine and harvest a wealth of consumer data traditionally held by financial institutions, fintechs will be able to serve additional, underserved customer segments, such as the financially stretched in retail banking and SMEs in commercial banking.
   
• Customer outreach – Fintechs will have the opportunity to reach customers in internal and external marketplaces by selling on different platforms, depending on their partnership models.
   
• Customer experience – Fintechs will have to bring their ‘A’ game in customer experience, especially when they are leading the customer relationship, depending on the business and partnership model they have in place.

What can the Canadian government do to facilitate success?

The federal government is leading the charge in laying the foundation of the open banking ecosystem. To do this effectively, cross-sector collaboration – between the federal, provincial governments and industry bodies – is critical, especially given Canada’s unique context, with banks being governed federally and credit unions being governed provincially.

Canada is unlike the UK, Europe or Australia, where open banking is regulator driven and, unlike the U.S., where it is market driven and  completely fragmented. So far, Canada’s different levels of government and industry groups are working closely to develop an implementation plan, API standards, security measures, interoperability and a customer consent framework that instills trust by allowing customers to have control of their own data. Equally important, a collaborative approach will help to set up the utility bodies needed to govern the open data systems.

Open banking is part of the broader modernization of Canada’s financial services system that has been unfolding in spurts. The federal government must coordinate and align all interrelated initiatives – including open banking, digital ID and payment modernization – to ensure Canadians are well served in a changing world. For instance, a robust digital identity system will be key to building trust and preventing fraud in an the open-banking environment.

Conclusion

The finer details of open banking are in flux as the government and industry players map out the blueprint. Nonetheless, we know that open banking will present a sizable opportunity for the Canadian financial services system. There are benefits for all key players, if they embrace the change, think big and find ways to play a meaningful role in the expanding universe of modern, newly connected financial services. Once the dust settles, they will be the ones who thrive.

One important element we haven’t touched on is the end consumer. Ultimately, open banking will be a true success ONLY if consumers adopt and benefit from its applications. In upcoming articles, we delve more into consumer issues, including different types of access and consent.

How CGI can help

CGI is ready to help you. We work with banks across the globe to build digital business models, develop pragmatic roadmaps that support the execution of strategy, and deliver technology capabilities that drive innovation and growth. If you’d like more information on our work in this area or to discuss how we can support your open banking journey, feel free to contact Franck Descubes, Vice-president, Business consulting.

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