With no open banking update in #Budget2023, FinTech leaders increasingly slack on delivery timelines

Canadian FinTech CEO Andrew Graham is tired of waiting for open banking to become a reality in Canada. He is not alone.

More than half a year after Borrowell launched an offering that allows Canadians to use their rent payments to build credit scores, Graham said it has seen significant challenges — ones that a formalized open banking system could address.

But despite the Open Banking Advisory Committee’s call for the federal government to move aggressively to implement the first phase of the system by January 2023, and the Liberal Party’s 2021 election promise to implement a made-in-Canada model “by the beginning of 2023,” the system is still delayed. The federal budget, tabled yesterday, did not include a mention of the future system.

“Imagine if, in order to keep your Netflix subscription active, you had to go through the registration process again and re-enter your bank details every 30 days.”

Borrowell’s Rent Advantage program, announced in July 2022, allows users to report their monthly rent payments, using data from their bank accounts, to Equifax Canada, the country’s largest consumer credit bureau.

But things haven’t gone according to plan, Graham told BetaKit in an interview. Without a formal open banking system in place to dictate a standard API – a secure way for FinTech startups and other third parties to access users’ financial data – Borrowell has instead had to rely on screen scraping.

The result is that less than half of Borrowell customers have been able to link their bank accounts for the service. With one large bank, which Graham declined to name, the company sees a failure rate of 75 percent. And over time, he said, using screen scraping for bank account connections tends to stop working: more than 40 percent of the company’s Rent Advantage users have to reconnect their account every month.

“Imagine if, in order to keep your Netflix subscription active, you had to go through the sign-up process again and enter your bank details every 30 days,” he said.

Borrowell uses a third party service provider to establish the connection to Rent Advantage users’ bank accounts. This third party, in turn, relies on a number of data aggregators or goes directly through the bank to access the user’s financial data. But there is often friction that prevents the connection from working, such as a hard block from accessing the data at all, or multiple questions about multi-factor authentication. Graham said he has spoken with representatives of the major banks, which have largely supported Rent Advantage, but there is no easy solution to connecting users’ accounts.

The technical challenge has a material cost for users who want to improve their credit. A good credit score is essential to qualify for credit cards, loans and mortgages with favorable interest rates and terms. A consumer’s payment history is the biggest factor in determining the score.

RELATED: Canada’s small businesses want open banking, too

Graham said Borrowell’s challenges speak to why Canada needs to move faster on open banking. “We need a real system that puts consumers in control of their data to enable them to better understand the economy,” he added.

President of Canadian Innovators, Ben Bergen, touted the omission of open banking from the budget in a statement that said the organization had hoped to see “more urgency and broader support” for technology companies. “We saw no update on open banking, despite an election promise broken months ago,” he said.

Steve Boms, North American executive director of FDATA, said in a post-budget statement that the organization was “disappointed by the lack of progress in Budget 2023 towards the implementation of Canada’s open banking regime, particularly since the timeline set out in the 2021 Open Banking Advisory Committee’s report is now decided.” Boms said the organization and its 30 member companies will continue to work with the finance department.

Boms told BetaKit that delays in implementing Canada’s open banking framework “risk Canada falling even further behind its international peers. For the sake of Canadian consumers and small businesses, we hope the government will meet its goal of launching open banking this year.”

Several FinTech executives BetaKit spoke to characterized the implementation as being in a holding period.

An executive told BetaKit that while the Treasury Department’s original intention had been to announce the next steps in February or March, department officials told some attendees at the Northwind FinTech Forum in February that the timeline had been pushed back, with open banking chief Abraham Tachjian not expected to deliver his recommendations to the finance minister until late spring or early summer. The executive spoke on condition of anonymity as Northwind operates under the Chatham House rule, where event participants can use the information received but cannot share who said it.

“If open banking was a real priority, we would already have it.”

“This is a matter of political will in my view. … If open banking was a real priority, we would already have it,” the executive said. “January 2023 was the target in the advisory committee report. But at the end of the day, these are not things the finance minister seems to really prioritize.”

In an email to BetaKit, a Treasury official said Tachjian’s “focus continues to be on the work required to support the government in its commitment to present a read-only model for open banking by 2023.” The official said open banking working groups – which have focused on accreditation for participants, privacy, liability and security standards for the system – will resume meeting on April 14.

In a progress update posted on the open banking implementation website in December, the Treasury Department said Tachjian, department staff and outside experts turned their focus to a period of “internal policy work” after the task force meetings, which took place from July to late October, and a steering committee meeting at the beginning of December with all participants in the working group for open banking.

“The working groups have made good progress to date, showing clear consensus on some core elements of accreditation and common rules,” the update says.

The internal policy work, focused on “the future administration of the open banking system,” previously took place alongside working group meetings, the update said.

According to the FinTech boss, API standards and clarity around how the system should be managed remain unresolved. As BetaKit reported in September 2022, working group participants from the FinTech community were concerned that delaying governance decisions could leave Canadians unable to seek recourse if their data or accounts are compromised, and that FinTech participants could not complain in commercial disputes with other financial institutions.

RELATED: Amid questions about progress, Canada’s open banking leadership says implementation ‘absolutely’ remains on track

Tachjian, task force participants and Assistant Treasury Secretary Randy Boissonnault covered governance considerations and key features, as well as technical standards, at a December steering committee meeting. The steering group includes all members of the working groups.

The ministry official said a “significant part” of the steering committee meeting was dedicated to governance.

The meeting summary, posted on the open banking implementation website, noted a number of considerations for developing a “purpose-built governance entity” such as federal and provincial jurisdictional issues, existing government frameworks, flexibility and scalability, competition and benefit to consumers. The summary said that the governing body should have control over managing the system, monitor the technological performance of the system and participants’ compliance with common rules, and resolve conflicts between system participants, as well as between consumers and participants.

The summary also noted that the government was “aware of local [API] standards in other jurisdictions” such as Germany, France, Poland and the Czech Republic, “more comprehensive review and assessment is underway from those of the OpenID Foundation and The Financial Data Exchange.” It also said that deliberations on the approach that the government should take to developing standards – when it comes to setting a single standard or letting the market set one – “is necessary.”

RELATED: Open banking task force fails to address critical governance and standards issues

In February, The Logic reported that some banking incumbents were advocating for Symcor — a data exchange company that is a joint venture between TD Bank, RBC and BMO — to become Canada’s technology provider for open banking and operate as a utility, or essentially a hub. API.

A delayed timeline only underscores Tachjian’s 18-month secondment from PwC, which is due to end in September. The Finance Department confirmed to BetaKit in September 2022 that Tachjian plans to return to the private sector at the end of his term.

“Time is running out given the way things are going,” said Alex Vronces, CEO of Fintechs Canada. “We’ll have to see [movement] the sooner the better.”

The FinTech chief said others in the space are increasingly weary of the implementation timeline. “There is not a lot of faith in the sector,” they said.

Featured image courtesy of Borrowell.