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What is Open Banking?
Open banking can transform the way Canadians manage their money.
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's in this guide?
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 fully been 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 declared interest in Open Banking back in 2018 but up until now there’s been minimal movement on the official policy front. Unfortunately, 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 everyday at Starbucks thinking “it’s only $4”, 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 guestimation. You can also mange 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 Open Banking services, rather than being a budgeting tool, 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 are what is used to let you securely share data between sites or apps on the internet. They are what is used by things like Skip the Dishes when it accesses your location through Google Maps.
They mean that one company can access specific data that another company has, without you sharing your passwords with anyone. Before anything like 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 you make sure you are safe when you share your 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 won’t only make sure you know if the service is a scam, but also mean you’ll 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 and nothing would change.
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.
More on digital banking
Earn cash back when you link your bank account and make eligible purchases with this innovative mobile app.Read more…
Sign up for a bank account or GIC with this online bank to earn high interest rates and pay no monthly fees.Read more…
Saving for a holiday? A house? Retirement? Budgeting apps could help you get a hold of your finances.Read more…
Planning a trip abroad? Make sure you have a banking app set up and ready to use abroad. Check out our guide to find the best one for you!Read more…
Wallet helps you organize your money and personalize budgets and goals. We take a look at its features, pros, cons and premium options.Read more…
Our in-depth review of the Revolut Metal card – the benefits, the cost and everything you need to know.Read more…
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