You may have heard of a new wave of banking apps claiming that they can use ‘open banking’ to help you manage your finances or get better deals on services. But what exactly is open banking?
What is open banking?
Open banking is the regulatory framework that gives consumers control and ownership of their financial history. Under open banking, third-party providers (like budgeting apps and websites that are not part of your regular bank’s services) can access your basic banking data. This can only be done with your express permission and ideally should be fully protected by banking law.
Open banking hasn’t been fully embraced by Canadian policy makers yet. But that doesn’t mean that Canadians aren’t already sharing their financial information with third-party banking and budgeting apps. The Canadian government is currently working on the implementation of open banking, but Canada is still behind countries like the UK and Australia when it comes to embracing the future of digital finance.
What is open banking used for?
Open banking apps and websites claim to be there to help you manage your money, budget or to show you the best deals tailored to your finances. While their budgeting tools have revolutionized the way many people manage their finances, be a little wary of any tailored recommendations for switching banking services, as these are often paid-for advertisements.
What do open banking apps do?
Open banking apps and websites most commonly use your spending data to highlight the areas that you spend the most money, and the places you might be able to save.
Say you buy a coffee every day at Starbucks thinking “it’s only $5”. But then an open banking app shows you how much that is a month, and suddenly you’re not going to Starbucks anymore. Money saved! (If only it was that easy…)
They can also add up and average out your spending on bills and food, so you can see how much is actually left for leisure activities. Because this can be done across multiple accounts, you’ll get much more precise amounts than the average Joe’s guesstimate. You can also manage your bills, split tabs and payments with other people, and set saving goals amongst other things.
How do open banking apps make money?
Obviously, these apps also need to make money, and they mostly do this by advertising. Open banking apps usually use your spending data to target advertisements for banking services that you might be interested in. Theoretically, this means the adverts you get will be for things you might actually want, and the data is processed by the app rather than sold to those advertising, but some people still prefer to keep their data as far away as possible from advertisers.
Some services, rather than being budgeting tools, are there to show you the best deals available to you by securely using your banking data. It’s worthwhile to remember that this is how these providers make money, and there are no assurances that these services are impartial, so you may just be getting targeted adverts and not tailored deals.
What data do open banking apps use?
Open banking apps only have access to your banking data, such as transactions and direct debits (basically, whatever appears on your statements), and not anything personal that your bank might know about your financial or living situation.
Regulations in the UK, for example, also state that open banking apps have to use APIs to access your data (see the section on APIs below), and this is the most secure way of sharing your data and ensures that only the data you give permission for can be shared.
What are APIs?
APIs (application programming interfaces) are what is used to let you securely share data between sites or apps on the internet. They are what is used by providers like Skip the Dishes when it accesses your location through Google Maps.
APIs allow one company to access specific data that another company has, without you sharing your passwords with anyone. Before this can happen, you will be asked for your permission, and you should always check exactly what you are giving permission for.
This is much more secure than the previous way that budgeting apps used to get data, which was by obtaining your passwords and logging on to your online banking in a ‘read only’ format.
How do I stay safe when sharing my data?
As with any new innovation, there are scammers ready to scam. Open banking apps should be regulated, but you might find some websites and apps that claim to be open banking services when they are not at all. The most important thing is to remember is that no open banking providers will ever ask for any passwords from your banking or other accounts.
It’s also a good idea to look for reviews online (preferably written on well-known websites or by trusted reviewers) of any service you are thinking of using. This will not only help you work out if the service is a scam, but it will also ensure that you find the best open banking option for you.
What if you don’t want to make use of open banking?
Open banking is strictly an ‘opt-in’ service and will only change the way your data is shared if you give express permission for the change. That means that, if all these new-fangled data doohickies aren’t at all your cup of tea, you don’t need to do anything.
Bottom line
We’re hoping Canada gets on board with safely and securely allowing open banking to benefit the financial lives of Canadians soon. Until that officially happens, you can still check out budgeting apps like Emma or Mint to help you visualize and manage your money.
Interested in the digital world where brand new, mobile-only, banks are challenging the traditional banking landscape across the globe? Learn more about challenger banks here.
Whether you’re looking for a digital-only bank, a virtual bank account or a bank account you can access online, we help you find and compare the best online banks in Canada.
Jaclyn Hurst is an associate publisher at Finder. She has a Bachelor’s degree in Business from Redeemer University and a University Certificate in Management Foundations from Athabasca University. She’s as passionate about business and finance as she is about the great Canadian outdoors, organic Sumatra coffee and music.
Whether you’re looking for a digital-only bank, a virtual bank account or a bank account you can access online, we help you find and compare the best online banks in Canada.
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