Canada’s Open Banking Journey: Interview with EY’s Dr. Francesco Pisani and Dr. Alexander Christoph
Originally published at https://ncfacanada.org on September 20, 2022.
“Banks should not try to circumvent the intended opening-up of formerly closed banking landscapes and data to the competition” — EY’s Dr. Francesco Pisani and Dr. Alexander Christoph
Mahi Sall: Please introduce yourselves and organization and highlight how you relate to Open Banking.
Dr. Francesco Pisani/ Dr. Alexander Christoph: We are Dr. Francesco Pisani, Senior Manager Strategy and Transactions | EMEIA Deputy Startup Leader and Dr. Alexander Christoph, Partner |Transaction Strategy & Execution at EY Germany.
EY is a leading advisor in the financial services sector with years of experience in working with incumbents and fintechs on topics related to Open Banking and alike. Digital and fintech are the core of our work. Thanks to our deep expertise and the possibility to offer end to end services, we provide advisory services that help our clients make reasoned strategic decisions. We frequently publish thought leadership articles on topics related to fintech and digital banking ecosystems in books, industry magazines and more. We constantly foster the exchange within the financial service community at the local as well as the international level by hosting podcasts, organizing events and meetings among the relevant parties in the ecosystem, engaging in working groups, supporting innovation hubs, and directly working with the most inspiring personalities in the field. Over time, we have contributed to the success of multiple organizations and empowered various policy makers with the right knowledge to continue enhancing the development of open banking.
Mahi Sall: Common Rules represent a key component of Open Banking System Design, with the premise that they create a level playing field which eliminates the need for bilateral arrangements between Open Banking participants. What situations would call for bilateral arrangements in an Open Banking environment that thrives on common rules?
Dr. Francesco Pisani/ Dr. Alexander Christoph: Open Banking typically builds on the notion that banking and transaction data belongs to the customer who should have unrestricted access to it. Standardized interfaces should facilitate typical use cases for customers and Small and Medium Enterprises (SMEs) to allow for them to access their data and automate simple use cases.
However, besides standardized access it might be viable for two parties to align on specific user experiences, use cases and integrations that rely on additional functionality — not data. Examples include embedded finance use cases, e. g. in-car payments.
Mahi Sall: Another key component of Open Banking System Design is the Accreditation Process. Canada’s Advisory Committee on Open Banking recommended to exempt federally regulated banks from the accreditation process, and similar consideration for provincially regulated financial institutions to be discussed. What major frustration points relative to the accreditation process can be anticipated and how to address them?
Dr. Francesco Pisani/ Dr. Alexander Christoph: Accreditation should be based on clearly defined criteria that should be designed in a way to facilitate easy access for fintechs and startups and yet provide for the necessary protection for customer data, while not precluding the possibility to generate value for the final users. If requirements are too strict, they will prevent competition and finally slow down innovation. It might make sense to set up “sandboxes” to facilitate fast innovations without requiring strict regulatory requirements.
“When too strict, accreditation requirements will prevent competition and slow down innovation.”
Mahi Sall: The third key component of Open Banking System Design are Technical Specifications & Standards with two approaches currently dominating the landscape: single standard approach (e.g. UK, Australia) and multiple standards (e.g. US, EU). Canada’s Advisory Committee left both approaches open for exploration. Can you speak to the advantages and shortcomings of these approaches?
Dr. Francesco Pisani/ Dr. Alexander Christoph: While the UK model defines data structures and functionalities in great detail for the TPPs and banks to implement, the EU model relies on industry standards to establish a set of commonly used standards.
The advantages of the EU model are clearly the opportunity for large players to reuse existing implementations and use that as a basis for a new standard. On the other hand, it leads to a heterogenous landscape of “standardized interfaces” and makes it hard to establish “pan-European” value propositions.
The UK model on the other hand defines a common starting ground for everybody with clearly defined data structures and functionalities. However, it might be limiting innovative forces.
Mahi Sall: In the early days of Open Banking some European banks provided in addition to APIS a Modified Customer Interface (MCI) as alternative means for third party providers (TPPs) to get access to customer data. Would you foresee the need for Canadian banks to deploy fallback options to existing APIs?
Dr. Francesco Pisani/ Dr. Alexander Christoph: API technology is well established today, so we would see no need for fallback solutions such as “screen scraping” or other means of access.
Mahi Sall: Please speak about lessons learned in terms of Open Banking test designs and implementation.
Dr. Francesco Pisani/ Dr. Alexander Christoph: Every situation if seen in detail is somehow special and should be treated as such. However, some general principles still apply. Having an open and constructive discussion among the parties involved that is supported by a good documentation has revealed to be a principle that could be applied to almost every similar circumstance. Furthermore, the right planning of resources and an agreed as well as feasible roadmap are paramount for the achievement of major milestones.
Mahi Sall: As in other jurisdictions, financial inclusion is high on Canada’s Open Banking agenda. Please share examples where Open Banking failed to deliver on this metric. What are some of the key lessons learned that Canada could benefit from?
Dr. Francesco Pisani/ Dr. Alexander Christoph: Open Banking alone should not be seen as the key to financial inclusion, but more as an enabler. While Open Banking might help to tear down some of the barriers that prevent access to financial services to part of the population, there are other structural as well as societal problems that might need to be addressed as well to achieve financial inclusion, especially in developed countries.
Mahi Sall: Chief among the factors affecting the take-off of Open Banking is low adoption by consumers. What could Canada do differently than other jurisdictions in order to pre-empt this risk?
Dr. Francesco Pisani/ Dr. Alexander Christoph: Adoption comes with convincing use cases for customers. Open Banking can hardly be promoted on its own. In order to promote Open Banking as technologies, regulation and communication should be straightforward and clear. Use cases should be developed that demonstrate to the future users how it makes their lives more convenient and better.
Mahi Sall: Drawing upon your observations, what are some of the quick wins in terms of Open Banking use cases that banks and fintechs should prioritize rolling out?
Dr. Francesco Pisani/ Dr. Alexander Christoph: Most successful use cases that immediately show a convincing value proposition to customers are account aggregation and personal financial management (PFM). In addition, financial planning and wealth management will be attractive for customers.
On the SME side, integrations with accounting apps/ packages and tax apps/ packages can be attractive as well.
Mahi Sall: What role does talent play in developing a thriving Open Banking system?
Dr. Francesco Pisani/ Dr. Alexander Christoph: Talent has a significant impact on the success of Open Banking — especially on the fintech side. On the tech side this is obvious, but also on the product side, Canada needs visionaries that can develop and sell value propositions to the customers.
Mahi Sall: Speak about Open Banking limitations and the most common misconceptions people have about it?
Dr. Francesco Pisani/ Dr. Alexander Christoph: Customers might develop a view where with Open Banking in place, everybody can see their bank data. This might prevent them from accepting modified T&Cs that come with OB regulations and adopt the new use cases that will be developed on that basis.
“API technology is well-established today, so no need for fallback options”.
Mahi Sall: What does Open Banking mean to banks and fintechs, and how does it affect the relationship between the two?
Dr. Francesco Pisani/ Dr. Alexander Christoph: In the early days of Open Banking, banks would be afraid that with APIs being in place, fintechs would be able to lure people away from bank web sites and apps to their own apps and finally take over the client relationship. However, experience shows that this is not the case. Banks today use fintechs to integrate their financial products into other value chains and use cases they were not able to address earlier.
Mahi Sall: How could banks and TPPs best prepare for Open Banking and extract the most value out of it?
Dr. Francesco Pisani/ Dr. Alexander Christoph: Banks should not try to circumvent the intended opening-up of formerly closed banking landscapes and data to the competition. Instead, they should try to formulate their own value statement and strategy around OB — what use cases are they foreseeing for their customers, what apps and integrations will they be delivering to keep customers and SMEs happy?
Mahi Sall: Given the very tight schedule of Canada’s Open Banking roadmap, where do you think the balance must be struck to meet deadlines without significant trade-offs?
Dr. Francesco Pisani/ Dr. Alexander Christoph: It might help to go back to the main motivations that pushed such agenda and use them as guiding principles to prioritize based on the value of each achievement while still considering the overall picture and the circumstance. For instance, it is almost impossible to think about relaxing security standards in banking, and there are good reasons for that, but what if the environment allows that and the objectives to be met are not related to security matters?
Mahi Sall: What must be thought of and accounted for at this early stage of Open Banking in Canada in order to ensure compatibility and interoperability at regional/international level?
Dr. Francesco Pisani/ Dr. Alexander Christoph: The API should be planned to support multiple currencies and languages. In addition, it should be able to accept digital certificates from multiple Certificate Authorities.
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Mahi Sall is an Ambassador of the National Crowdfunding & Fintech Association of Canada “NCFA”, and an Expert on Fintech-Bank Partnerships. He is based in Berlin, Germany.