Tobias Funke & Open Banking

Open banking is now consumer directed finance. Is this helpful to Canadians?

In some ways yes. There has always been a branding problem with the term open banking. It sounds scary. No consumer wants to expose their banking information.

I still keep my hand over the keypad everytime I use an ATM...

But when phrased differently, say “would you like to receive better rates on student loans? Or would you like to avoid overdraft fees? Or would you like to retire with more security? The clear answer for any consumer, is a very un-scary yes!

The challenge is that open banking has a phenomenal brand in other developed markets. The UK, US, Australia and Europe have all codified (or at a minimum stop-gapped) some form of an open banking framework. The term is used by government and industry folk alike, and has inspired a dedicated global community.

Canada would do well to seize this moment of heightened global awareness for open banking. Why not just ride the wave?

Financial systems globally are moving towards an open banking consensus. Changing the name to consumer directed finance this late in the game will squander all of the momentum stirred up by our international peers.

Canada's rebranding mirrors lessons learned by Arrested Development favourite, Tobias Funke. Leading up to a job interview, Funke creates buzz around the watercooler to build his personal brand at the office he hopes to be hired at. Funke spends days dropping lines like “wow that Funke really is some kind of something”, and “boy this Funke is all anybody is ever talking about”, only to introduce himself at the big interview as... Tobias.

Consumer directed finance meet Tobias.

International approaches to Open Banking Implementation

More critically, why are we focusing on consumer awareness in a fight that is exceedingly technical and even confuses fintech pundits. Let’s explore.

In 2018 the UK's Competition & Markets Authority (CMA) mandated that nine major banks provide API access to consumer & small business financial data. This compounded the benefits of another federal initiative, the Financial Conduct Authority's (FCA) Sandbox Program. The Sandbox was a space for startups to test new and complex product offerings in controlled environments with bureaucratic oversight. The UK government's prescriptive approach to open banking implementation provided the needed regulatory certainty to allow fintech startups to succeed.

In the US, the country where Uber and Airbnb famously asked for forgiveness not permission from regulators, we have a market driven model of open banking. In the early 2000's, data aggregators like Yodlee did not wait for government mandated bank APIs. Instead they bridged this tech gap through quasi-legal screen-scraping, a method that dupes banks into signing consumers into their own bank accounts in order to access third party (non-bank) apps.

The success of data aggregators can be thanked for the emergence of US fintech unicorns like Dave.com, Flywire, and Chime. This was acknowledged in 2018 by US Treasury Secretary Steve Mnuchin, who said that "an open banking regime for the US market is not readily applicable", giving fintechs breathing room to innovate and build stronger consumer and small business tools.

Fast forward to 2020 and Plaid, a financial data aggregator, is sold to the most entrenched financial elite of them all Visa, for $6 billion. 

As for Canada?

Neither the US or UK were consumer driven. So why the emphasis on consumer clarity and participation in Canada?

The rebranding to consumer directed finance, is an attempt to better engage Canadian consumers - the ones who will undoubtedly benefit the most from products built with open banking. Particularly as Covid-19 massively accelerate the adoption of fintech, the need for clear open banking guidelines has never been more urgent. However it is one step forward, and two steps back as federal regulators postpone the second round of Open Banking Consultations.

Open banking may be an imperfect moniker but it has managed to galvanize an international audience of fintechs and regulators. Now is the time to channel that momentum into affecting Canadian policy, not rebranding.

Adjusting nomenclature and delaying consultations, do little to advance the financial needs of Canadians and the ambitions of domestic technology firms.

Canada, please don’t be a Tobias... be a Funke.