Articles

5 Benefits of Open Banking APIs

Open banking APIs (application programming interfaces) offer a wide range of benefits for a modern financial institution, from increasing revenue to reducing fraud risk.

Open banking is finding its way into Canada with the government working hard to set regulations by the tentative launch date of January 2024.

In the meantime, financial institutions like yours should start preparing. When open banking is introduced to the public, you should be in a position to roll out products and services faster than competitors and with minimal friction.

Below, we explain the meaning of APIs, the state of open banking in Canada, and how exactly open banking APIs can help your business.

What is Open Banking?

Open banking refers to using APIs to access financial data by third parties in a secure manner.

Customers expect faster, one-stop banking services. So far, customers have relied on third-party services that use screen scraping for non-core banking services like budgeting and financial decision-making.

Screen scraping leaves your customers vulnerable to multiple types of online threats. In a world rampant with cybercrime, your customers want a safer alternative, and that’s where open banking offers value.

With open banking, you can securely allow third parties to access your financial data. For example, suppose a fintech app offers AI-based investment advice.

To offer advice, it needs to look at your current portfolio. You can use open banking to allow the app to access your financial data securely without having to use screen scraping.

This model offers all parties a benefit — you can use the app faster, the fintech can operate with the bank’s license, and the bank can charge a fee for the customer data.

Open Banking in Canada

Open banking is currently unavailable in Canada. The government is developing a roadmap to introduce open banking in Canada safely.

According to the Final Report from the Advisory Committee on Open Banking, the government has established four groups to provide input on the four fundamental aspects of the open banking framework—accreditation, liability, privacy, and security.

The original target date to introduce open banking was January 2023. However, the committee is yet to reach a consensus on multiple aspects.

The Canadian government may take a while to implement open banking. But we’ll likely see key developments in the implementation process over the next few months.

The government has appointed Abraham Tachjian to develop the open banking framework for Canada.

Benefits of Open Banking APIs

While you wait for open banking regulations to become available in Canada, it’s best to prepare your API ecosystem, so you’re ready for open banking when it’s introduced.

Once you have a mature open banking API ecosystem that’s operational, you’ll benefit in the following ways:

Increased Revenue

As a financial institution, you can use open banking APIs to increase revenue in one or more of the following ways:

Partnering with Fintechs offering innovative solutions: You can partner with Fintechs to offer innovative solutions without creating, managing, or innovating products and services in-house. The partnership allows you to offer services your customers expect and improve their end-to-end journey. Of course, these services also create new revenue streams for you.
Selling to Fintechs: As a bank, you can add another revenue source by providing banking-as-a-service (BaaS), where third parties can connect to your database using APIs for a fee. Third parties can use this data to provide value-add services in addition to what regulators mandate.
Optimize your marketing campaigns based on user data: Open banking, combined with data aggregation, provides deeper insights into customers’ behavior and choices. These insights enable you to position your products better and run personalized marketing campaigns, which can increase your overall revenue.

Banking as a Service (BaaS)

Open banking APIs and Banking-as-a-Service are often used interchangeably.

However, they’re fundamentally different. BaaS is a business model where banks integrate their services into a third-party’s product or service.

Fintechs and non-financial companies (NFCs) use BaaS to offer customers better digital banking services, like one-minute loan approvals, without getting their own banking license. This is made possible through open banking APIs.

BaaS is quickly gaining popularity as customer dissatisfaction with banks’ existing services grow. According to Delloite, 2x ROAA (return on average assets) for banks focused on BaaS offerings.

A few ways you can monetize by proving BaaS include:

Providing your banking license, technology, and products to other banks, non-financial companies (NFCs), and aggregators.

You can partner with a distributor with excellent end-user relationships to offer innovative financial solutions.
You can partner with an aggregator who acts as a provider-aggregator to provide an out-of-the-box solution by coupling the capabilities of multiple vendors.

Payment as a Service (PaaS)

Open banking APIs allow you to build faster, more secure bank rails. Once you implement open banking, you can enable users to make direct payments seamlessly without entering card details.

As a bank, you can use open banking APIs to increase payments’ transparency and scalability by leveraging individual transactions and bi-directional processing.

With open banking APIs, you can upscale your current payment methods like ACH (Automatic Clearing House Network) and wire transfers. APIs will also enable you to offer modern payment methods like Real-Time Payments (RTPs) and Pay-By-Bank when they become available in Canada.

Open banking also facilitates payment initiation service (PIS). When a merchant partners with a licensed third party, the third party can initiate a payment on behalf of a customer’s bank account using PIS.

PIS doesn’t require the customer or merchant to share any sensitive information. The customer simply approves a payment via the banking app with a secret pin or biometric authentication.

Just like any account-to-account transfer, the money is transferred directly to the merchant’s account within seconds.

Improved Customer Engagement

Open banking APIs improve customer engagement by streamlining the onboarding process and offering a one-stop solution for multiple needs.

For example, open banking APIs can allow biometric logins and authentication to minimize the time it takes your customer to access the account. Your users will be able to complete tasks faster without compromising data security.

With Canadians worried more than ever about the cost of living crisis in Canada, they’re carefully observing their money.

Typically, they’d need to source information from individual sources to get a full picture of their financial status in order to make sound financial decisions.

Open banking APIs can simplify the process by allowing third-party apps to automatically aggregate this information into a single app, improving customer engagement.

Reduced Risk of Fraud

Open banking APIs provide access to customer data, allowing more accurate risk profiling. Access to customer data allows incorporating verified identity information, account balances, and transaction patterns into your risk models.

The UK, where open banking has been available since 2018, has reduced card fraud significantly. In 2021, the UK reduced the losses from card fraud by an impressive £49.2 million.

The following four things make open banking payments safer:

Each payment uses strong customer authentication (SCA), which was introduced as a requirement in Europe by the revised Payment Services Directive 2 (PSD2) for ecommerce transactions in 2019.

No sensitive information is required for any open banking use case.
APIs pre-populate payment information.
Open banking providers take care of onboarding the merchants as well as carrying out the necessary due diligence.

Implementing Open Banking APIs with Blanc Labs

Familiarizing yourself with open banking APIs is critical to ensure you’re equipped with the right knowledge and tools when open banking becomes available in Canada.

The problem? It can feel daunting. Partnering with the right team can make the process a whole lot easier.

Blanc Labs, in partnership with Axway and Mulesoft, can help you build a robust open banking API ecosystem. We can answer any questions you have and take care of the end-to-end implementation process.

Book a discovery call with Blanc Labs to learn more about open banking APIs.

Articles

What is Open Banking and Is It Available in Canada?

If you’re a bank or financial institution, you should know what open banking is. Open banking consolidates your customers’ financial information. It allows them to access their financial data via a single banking or third-party app, allowing them to make smarter and faster financial decisions.

This guide explains open banking, how it works, and its benefits.

What Does Open Banking Mean?

Open banking is a secure framework that facilitates the exchange of financial data between financial institutions and third parties through APIs (application programing interface).

Think about the last time you wanted to check your investment portfolio. You probably had to log into multiple online portals and bank accounts to get financial information.

Open banking (also known as consumer-directed or consumer-led banking) can shorten this process to a few minutes by bringing all the information to a single dashboard.

When you try to access financial information via a fintech app with open banking, your bank transmits data via a secure online channel to the app. More importantly, you don’t need to provide login credentials when using open banking.

As you can imagine, being able to pull financial data securely from banks and other institutions will allow fintechs and the banks themselves to develop innovative products that enable Canadians to manage finances more effectively.

How Open Banking Works

Here is a typical scenario for how open banking works:

A bank’s customer downloads a fintech app to manage finances and wants to start using it.
The app needs to access financial data, so it prompts the customer to link their bank accounts.
The customer authorizes the bank to securely share financial data with the app.
The bank transmits customer data through a secured online channel.
The app provides financial insights and recommendations.

Isn’t that how apps operate anyway?

Well, yes, except for one key difference. Traditionally, when a person links an app to their bank account, it uses screen scraping and the person’s login credentials to log into it and pull financial data.

On the other hand, open banking uses APIs (application programming interfaces). In simple terms, APIs allow two systems (the banking system and the third-party app, in this case) to communicate and exchange information securely.

Banks or financial institutions are responsible for building, implementing and managing the APIs that will allow customers to connect their accounts with new and innovative apps.

Banks need to find the right API management platform and be mindful of some common open banking API challenges. Alternatively, you can book a discovery call with us, and we’ll take care of the technical aspect of implementing open banking.

Screen scraping is prone to privacy and security risks since you can’t control how the fintech stores or uses your data. The practice can also violate your bank’s electronic access agreement (EAA), which frees the bank of any liability in case of an unauthorized transaction in your account.

Screen scraping will likely become obsolete once open banking becomes available in Canada.

What is Screen Scraping?

Screen scraping is the process of capturing data present on a screen — from a webpage, document, or app — for using it in another system or app.

It’s generally used by apps that need to extract data from legacy systems that lack an API management system or any other source of data extraction.

Data accessed by apps through screen scraping isn’t regulated. Without a standardized system, all third parties use their own level of security and approach to handling data.

Screen scraping platforms also store login credentials as text strings. The lack of encryption leaves your data vulnerable to attacks from hackers.

Unfortunately, an estimated four million Canadians are accessing banking-style services via screen scraping. The growing popularity of financial planning apps strongly calls for a more secure, regulated framework like open banking.

However, open banking still has its limitations. For example, the bank might securely transmit the information to a third party, but if someone hacks the app itself, they might steal your data. So even though open banking is safer than screen scraping, it’s not fully secure.

Benefits of Open Banking

The implementation of open banking in Canada will benefit both you and your customers.

Here are four ways open banking will benefit your customers:

Gives an overview: Open banking provides a secure framework to pull information from your bank accounts, credit cards, investment partners, and other financial institutions. An open banking app can consolidate all your financial data and provide a complete overview in one place without switching between websites and manually extracting information.
Allows shopping around for the best deal: Comparing deals for personal loans, credit cards, or mortgages requires careful research. A comparison app using open banking can speed up the process and help you find the best deal. Apps can also help you understand how likely you are to qualify if you apply for a loan based on your financial information.
Speeds up the application process: Applying for loans or credit requires submitting information, including your financial statements and KYC documents. Instead of manually submitting these documents, an app can store them for you and submit them as necessary when applying for a loan or opening an investment account.
Helps make smarter financial decisions: Fintech apps can use artificial intelligence (AI) and machine learning (ML) to create financial roadmaps based on your financial data. You can use these apps to create a budget, understand your spending habits, and find the best investment options based on your risk appetite. Apps may also project cash flows based on your budget and financial obligations so that you can estimate the available balance in your account at the end of each month.

Here are four ways open banking benefits you as a bank or financial institution:

Collaborate with third parties: Collaborating with third-party apps can help you explore data-sharing agreements and identify new opportunities. You can streamline processes and offer more related services to stay ahead of the competition.
Prepare for the future: Open banking isn’t available in Canada, but it soon will be. Over time, your customers will likely demand the privacy and security that open banking offers. As data privacy laws evolve, open banking will ensure you’re in an excellent position to adapt to changes. Moreover, quickly becoming compliant with evolving rules without interrupting service improves customer experience.
Increase market share: Your customers crave convenience. Allowing them to consolidate financial information securely ensures excellent customer experience. Offering open banking is critical to fulfilling your customer’s demands. Over time, you might even lose market share by not offering open banking.
Lower operating costs: Open banking ensures banks’ data lives in a centralized, digitally accessible location. This minimizes data silos and facilitates automation. Automating banking processes like mortgage underwriting allows you to reduce operating costs.

Open Banking in Canada

While open banking is currently unavailable in Canada, it’s available in countries like the UK and Australia.

The Canadian government is working on safely implementing open banking in Canada. The government appointed Abraham Tachjian to lead Canada’s open banking framework development initiative in March 2022.

According to the Final Report of the Advisory Committee on Open Banking, the government had set a target to make open banking operational by January 2023, but implementation is still under process.

However, the government is committed to implementing open banking at the earliest and realizes the benefits it can offer to Canadians.

For example, when asked about how open banking can address the challenges facing BIPOC Canadians, small businesses, and rural/remote communities, Tachijan explained:

“While Canada’s banking framework aims to ensure all Canadians have access to basic bank accounts, some Canadians may be underbanked. Open Banking creates the opportunity for consumer-led banking, which gives consumers and businesses greater control and protection over their financial data, as well as more transparency on how it’s used.”

While the government lays the groundwork to implement open banking, you should ensure you have everything set up to offer customers open banking soon after it becomes available in Canada.

Is Your Financial Institution Ready for Open Banking?

Open banking is about to transform the financial services industry. Your customers will have the flexibility to choose how they interact with your bank, and your competitors will have the option to offer innovative solutions.

Implementing open banking can feel daunting, but partnering with the right team can simplify the process.

Blanc Labs helps banks implement open banking from scratch. Book a discovery call to learn more about our open banking solutions.

Articles

Open Banking in Canada: How Banks and Customers Can Benefit

By Bob Paajanen & Steven Chung

Open banking benefits Canada

Exactly a year ago, the Department of Finance released the final report from the Advisory Committee on Open Banking. It set an ambitious 18-month roadmap for Open Banking implementation in Canada. With 2023 just a few months away, it is crucial that financial institutions understand the advantages of open banking and the possibilities it can bring, not just for themselves but also for their customers.

What is Open Banking?

Simply put, Open Banking is a way for business owners and customers to share their data with their financial institution (and connected third-party providers or TPP) securely using APIs governed and regulated by universally accepted protocols. Customers will have full control over how much and with whom they would like to share this data. They will also have a unified view of all their balances, credit cards, mortgages, investments, and any financial transactions across all banking entities. For this reason, open banking is also sometimes referred to as “consumer-permissioned data sharing” or open finance.  

Open banking started in 2016 with European governments pushing for more open financial data and laying the foundations for banking evolution. The EU’s second Payment Services Directive (PSD2) was a powerful legislation that made an impact on the UK’s Competition & Market Authority (CMA) which mandated that nine of the country’s largest banks develop an “open banking standard” and enable customers to share data with Fintechs and third parties.

Open banking is now present in several parts of the world, including Australia, Brazil, India, and South Korea, where it is government-led, and in countries like China and the US, where it is primarily market-led.

Data Sharing in Open Banking 

Before open banking, banks would share data with third-party providers (TPP) or applications using a process called ‘screen scraping’, where data is taken from one app through user details, copied and pasted for another purpose. A good example of this might be a typical finance aggregator app that sends a bot to the bank’s website on behalf of the customer and uses the consumer’s bank login and password to access all their financial information. About 3.5 to 4 million Canadians currently use apps that employ screen scraping. Until now, these TPPs did not have a formal relationship with banks and had access to more information than was necessary. Banks often were unaware of which data was scraped, yet they would be accountable if and when there were data breaches.

With new regulations around data sharing, banks will now share only relevant data with TPPs, with the customer’s consent, through APIs or application programming interfaces. Customers will no longer have to share their banking credentials with the TPP. Thanks to this change, many Fintechs that offer open API-led data-sharing networks have come to the fore.

As we move closer to 2023, several incumbents and challenger banks are partnering with data aggregators that provide API-led data-sharing networks, which will allow customers to securely share their data with several Fintech applications and provide them with financial insights in real time. Recent examples include EQ Bank’s partnership with Flinks, CIBC’s participation in the MX network and RBC’s partnership with the Plaid and Yodlee networks.

Why is this happening? An example will illustrate the opportunity and upside for industry participants. When a customer or their Fintech requests data from multiple financial institutions, aggregators like the entities named above will be able to monetize and sell via subscription the data to each financial institution. This can generate insights around where customers are at risk, or have relationships with other financial institutions, even though the details will be masked. Better customer profiling can be driven from empirical data through this data sharing model.

Open Banking and Digital Transformation

Nearly every, if not all, industries are going through a digital transformation. Long before open banking, many Fintechs had begun unbundling financial services. This trend has only accelerated thanks to open banking. In Europe, for example, TPPs grew from 100 to 450 in between 2019 and 2021. Financial services are now being restructured around “jobs to be done” rather than just products, creating better experiences and value for customers. Open banking will lead to two major outcomes when it comes to data: Interoperability and Automation. By making financial data interoperable, new customer value propositions could be created that offer better access and user convenience thereby creating new revenue streams for the bank. Once customers get a clear and unified view of their financial position, automation rules could take over to help with better decision-making to manage daily finances. This will make it possible for banks to cross-sell products and services without the customer ever leaving the bank’s ecosystem.  

How Open Banking Benefits Financial Institutions

It is obvious to see the customer benefits of open banking. But what about financial institutions? One of the major reasons why open banking is seen as a catalyst by many governments and markets, is that it will boost growth and increase economic efficiency. One report from McKinsey estimates that the adoption of open banking could result in “1 to 1.5 percent of GDP in 2030 in the European Union, the United Kingdom, and the United States, to as much as 4 to 5 percent in India.” Another study reveals that $416 billion in revenue is up for grabs for those financial institutions that are agile enough to jump in on the opportunity.

Hyper-targeting and faster onboarding

A more holistic view of an individual or SMB’s finances means that banks too can make more customized offerings to their customer. Open data sharing will also make it easier and faster for customers to switch accounts, purchase new products or get approved for lines of credit.

Reduced operational costs 

A lot of data remains in physical documents and disparate digitized sources. An open financial data system will ensure that the data is held digitally in a centralized location and make it easier for banks to adopt automation methods, thereby cutting operational costs. This is especially true for mortgage underwriting, where intelligent data processing and management can save between $7,000-9,000 per mortgage application. Here are more reasons banks can benefit from automating data intake and processing.

Better security

Fraud accounts for $4.5 trillion per year, which is equal to about 5% of global corporate revenue. Open banking may introduce a single-use digital token system compared to screen scraping, which is risky and open to misuse. Bad actors will have little to no access to customers’ login information during transactions, thereby reducing the risk of data breaches. Data sharing in real-time, could also provide a better view of suspicious activities and build predictive models to mitigate fraud.

Lead Generation

Banks acquire information from TPPs, such as credit bureaus, about potential customers during lead generation or mortgage origination. In the US, for example, nearly 50% of loan originators depend on third parties for information related to credit, KYC, and property valuation, costing banks up to $80 per application. Open data sharing enabled by APIs could potentially reduce the cost of acquiring this information and make it available securely to more financial institutions.

Are you ready for open banking?

Digital transformation has changed the way banks engage with their customers. With open banking, we are at the pivotal moment where customers can choose the services and products that work best for them, while banks and FintTechs can come up with innovative new ways to engage with them. Opening up banking systems can be a daunting change for banks that have operated through a linear chain thus far. Blanc Labs, in partnership with Axway Open Banking, offers a step-by-step approach for banks to:

Build on existing infrastructure to reach their open banking goals faster
Unlock the potential of their existing data to create new business opportunities
Create a security layer for identification and consent to comply with the latest open banking standards
Discover, Manage, govern, market and monetize their APIs

Book a demo or discovery session with Blanc Labs to learn about the impact of our Open Banking solutions. 