Open banking and payments modernization: running away from opportunity

By: Alex Vronces, Executive Director, Fintechs Canada 


When it comes to open banking, Canada is putting off third-party payment initiation at its own peril. The federal government and its advisory committee have noted time and time again that the scope of their open banking review is limited to data mobility, making third-party payment initiation nothing more than a future possibility.

What Canadians need is more competition and innovation in the financial sector. The Competition Bureau says these things will follow if we make the movement of money between financial institutions more seamless, empowering Canadians to better vote with their dollars. Third-party payment initiation, if done right, will make the movement of money more seamless than ever.

There’s this idea that third-party payment initiation is more complex than data mobility. This is why, the story goes, Canada ought to put off the former and start with the latter. Though the idea is true, in a more general sense, it’s being misapplied in the Canadian conversation about open banking.

The problem is that Canada is missing an opportunity it probably won’t get again for a long time.


The marginal cost of boiling an already-boiling ocean is low

The idea is not that third-party payment initiation is so complex that it’s impossible. If I may translate the idea to put off third-party payment initiation into cliché-riddled corporate-speak, it’s simply that we shouldn’t “boil the ocean.”

Moving data is one thing, but moving money is another. The gravity of risk is different when it comes to moving money. If my bank tells me my account information has been compromised, I kiss my teeth. If my bank tells me my account balance has been compromised and cleared out, then I’m off to Parliament with a torch and pitchfork to get my money back. 

So changing how money moves comes with technological and regulatory work. Banks need to update their systems. Public policy needs to be updated and made anew. I don’t doubt the technological and regulatory work is tough for banks and the government to manage. Let’s even call it boiling the ocean.

But Canada is already boiling the ocean. The federal government and financial sector are already modernizing the country’s payment systems, as well as the supporting legislation, to change how money moves. 

Payments Canada is supposed to be launching the real-time rail, or RTR, next year. The RTR will run on ISO20022 messages. Some of the ISO20022 messages are literally called payments initiation messages. 

With a centralized service that supports authentication and authorization, the RTR can bring third-party payment initiation to life. Look no further than Australia’s New Payments Platform for inspiration.

Retail payments oversight is also on the way, and so are changes to the Canadian Payments Act. With these, third-party payment initiators can be given access to the RTR. 

The tough questions about liability and consumer redress can be answered in Payments Canada’s by-laws and rules. Alternatively, the federal government’s credit and debit card code of conduct can be revamped to do the same — something like Australia’s ePayments code.

With the federal government and Payments Canada already changing how money will move, it’s curious to say the time for third-party payment initiation isn’t now. Or to say the time wasn’t years ago when the federal government first consulted on open banking. 

I say there hasn’t been a better opportunity all along. 


The longer we ignore the opportunity, the more elusive it gets

In 2019, the government wrote that open banking would need to be “staged” and “aligned” with payment system modernization. Fast forward to 2021 and the national conversation about open banking has yet to meaningfully influence payment system modernization. It’s not clear what staging and aligning open banking with payment system modernization even means.

The longer we neglect the subject, while the current technological and regulatory work comes to a close, the longer it will take for third-party payment initiation to come to fruition.

One thing we know is that legacy technology and regulation is difficult to change. There’s hardly better evidence than the fact that it took nearly two decades to broaden access to the ACSS after the federal government and Payments Canada recommended doing it.

That’s why it’s important to get open banking right at the outset. The risk of getting it wrong is a Canada that can’t accommodate third-party payment initiation. The risk is that we’re going to need another technological and regulatory overhaul to get it right. 

If you’re in favour of full-fledged open banking in Canada, then an RTR that has neither the rich functionality nor the legal framework to deliver third-party payment initiation is a missed opportunity. So is legislative change that falls short of supporting it. I wish I could say everything on the way is going to deliver third-party payment initiation, but Payments Canada’s latest RTR consultation paper says otherwise.

Of course, it’s not a missed opportunity if Canada doesn’t want it to happen in the RTR. Maybe we should prefer the spaghetti-bowl approach to third-party payment initiation, with banks offering the capability through their respective APIs.

Still, I wonder why we would limit our options at the beginning, especially when the option we’re limiting is closer to being real than any other to deliver third-party payment initiation. I’d also wonder if you’re not wondering the same thing.


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