What is Consumer-Driven Banking (CDB)? Is this different than Open Banking?

Consumer-driven banking, also sometimes called open banking, permits individuals to securely share their financial information with authorized third-party providers through Application Programming Interfaces (APIs). This capability allows consumers to access a range of financial products and services, such as budgeting tools, financial planning apps, and customized financial advice.

Do we have CDB in Canada?

Canada is moving towards finalizing the CDB framework but the government will clarify details on implementation as the regulatory framework is finalized.

The Canadian government has been exploring CDB since 2018 and several consultations have been held to understand the potential benefits and challenges. The first phase is expected to allow consumers to securely share their financial data with accredited third parties. Canada is still working on establishing the necessary regulatory framework and technical standard. This is critical to ensuring consumer protection, data security, and privacy.

Are all banks and bank accounts covered under consumer-driven banking?

The CDB legislation will specify the names of the banks that will be mandated to offer CDB. Other financial institutions including non-mandated banks, credit unions and fintechs may join the framework as voluntary participants.

CDB will, in phases, be offered in relation to individual and small business owners holding checking accounts, savings accounts, registered and non-registered investment accounts, payments products (credit cards), lines of credit, and mortgages. The Government, in time, will clarify the implementation of these products.

What are the potential benefits of CDB for consumers?

• Enhance financial management and control: Consolidating financial information from various banks into a single platform simplifies financial oversight. Approved third parties get access to information only with your consent.
• Tailored services: Financial service providers can deliver customized products and services based on a consumer’s financial data.
• Greater competition: The entry of more market players results in more product choices and services for consumers.
• Encourage innovation: Fosters the creation of new financial products and services by utilizing shared data.

Are there risks?

While CDB can empower individuals to manage and share their financial data and offer many benefits, it also comes with potential risks for consumers and the framework will establish consumer rights and responsibilities that guide and protect them within this system. The government is working with the banking sector and other stakeholders to provide a robust regulatory framework, consumer education and have strong security practices in place which would help foster a safe and competitive environment for all.

Open banking in other countries

United Kingdom

Following a directive from the Competition and Markets Authority (CMA), UK banks began offering open banking services in January 2018. The CMA mandated the nine largest UK banks to provide licensed startups with direct access to certain financial data, down to transaction-level details, with customer consent. This initiative was designed to boost competition and innovation in the financial services sector.

Aims

• Increase competition: More competition among banks and fintech companies to improve services and lower costs for consumers.
• Improve services: Access to a range of innovative services, including budgeting tools and personalized financial advice.
• Enhance consumer control: Easier switching between providers with greater control over financial data.

Lessons learned

• Importance of regulation: Strong regulatory frameworks ensure data security and consumer protection.
• Need for consumer education: Educating consumers about the benefits and risks of open banking is crucial for adoption.
• Collaboration is essential: Successful implementation requires cooperation between banks, fintechs, and regulators.

Australia

Australian banks began offering open banking services on July 1, 2020. This initiative, part of the broader Consumer Data Right (CDR) legislation, allows consumers to access and share their banking data with accredited third parties. Similar to the UK's objectives, the aim is to enhance competition and innovation in the financial services sector.

Aims

• Empower consumers: Greater control over financial data allows consumers to secure better financial products and services.
• Promote innovation and competition: Encourages the development of new financial services, providing more options for consumers.
• Informed financial decisions: Tools and services using open banking data assist consumers in making better financial choices.

Lessons learned

• Phased implementation: Implementing open banking in stages allows for better management and adaptation.
• Emphasis on security: Secure data-sharing processes are in place for maintaining consumer trust.
• Reciprocity: Australia’s experience shows the importance of implementing reciprocity in data sharing.