By Kevin Morris, Strategy and Programs Director, Large Credit Union Coalition (LCUC)
For financial services in Canada, 2019 was an important year, as it featured several major events by the Canadian government to accelerate digitization of services. The first was the launch of the “Merits of Open Banking” consultation by the Department of Finance, and another was the introduction of the “Canadian Digital Charter.” These two initiatives will introduce new societal norms for Canadians and operating norms for the financial institutions that serve them. As an industry, we are just beginning to decipher how regulations from these new initiatives will affect business models, consumer interactions and IT infrastructure. The absorption and implementation of the Digital Charter and Open Banking will take years, but many of the challenges that have been initially identified could simply be resolved with a ubiquitous digital ID system in place in Canada.
Let’s frame the Digital Charter and Open Banking with their intended consumer goals: The Charter intends to modernize services provision to Canadians across all industries in a way that protects their privacy, their data and the data about them. Open Banking intends to improve financial services competition and decision making, by mandating that financial institutions share their client’s data with other financial service providers if the client consents for that data to be shared. The most commonly identified use case is viewing all of one’s finances from all of their accounts, securely (via API connections), and on one app. This framework creates a need for financial institutions to understand the ownership and obligations that they have with handling their client’s data. Open banking has the potential to rapidly accelerate the digitization of financial services, and, consequently, create innovative solutions to existing banking challenges often faced by consumers.
However, there’s a problem: sharing financial data is hard.
Without a digital ID system in place to verify individuals that would like to connect their various accounts through Open Banking, financial service providers will have to implement additional processes to verify and authenticate clients. In a few ways, this undermines the goals of Open Banking.
“Open Banking regulation will still work in Canada without digital ID, but the extra work required, as well as likely inconveniences, will make it more challenging for the goals of Open Banking to be achieved.”– Kevin Morris
A common digital ID system that allows for verification of an individual across financial service providers is critical to the success of the goals of Open Banking in Canada. Open Banking regulation will still work in Canada without digital ID, but the extra work required, as well as likely inconveniences, will make it more challenging for the goals of Open Banking to be achieved. This is also why DIACC’s public-private partnership efforts with the creation of the Pan-Canadian Trust Framework for digital ID is so important. With the introduction of a common set of standards for how digital ID systems should interface with one another, financial service providers in Canada will have a much easier time connecting client data securely and with regulatory compliance. With the issues of authentication and verification out of the picture, the innovative services that Open Banking can provide will lead to a better quality of life for Canadians.
To learn more about digital ID’s role in the financial services sector, read our mini white paper, DIACC Industry Insights: Digital ID in Financial Services.