Office buildings in Toronto’s financial district

The prospect of “open banking” is setting the stage for a “major transformation” of the financial services industry, but the big banks are likely to be at the forefront, according to a report published Monday from PricewaterhouseCoopers LLP (PwC).

Earlier this month, the federal government published a consultation paper on open banking to determine whether letting clients share their financial information with fintechs and other third-parties would lead firms to develop innovative products and services to improve outcomes for Canadians.

Specifically, open banking will help financial institutions reduce costs through innovation and uncovering new efficiencies. “It also has the potential to reduce risks, such as fraud and money laundering, as sharing data between institutions will make it easier to spot anomalies,” the report states.

At the same time, clients will gain more control over their financial lives, and may benefit from the enhanced competition generated by open banking. “As the concept gains traction around the world and consumer demands for increased convenience, price for value, data privacy and transparent consent drive a shift to new ways of doing business, it’s only a matter of time before open banking fundamentally reshapes the industry,” states the report.

However, to see these gains, client concerns about privacy and data security will need to be properly addressed, the report stresses. “For customers to buy into open banking, they’ll need to feel confident that there’s a proper balance between what both they and the banks are getting out of it. And that means getting privacy issues right by building them into the design of an open banking framework,” it states.

Open banking represents a “significant opportunity” for Canada’s big banks and mid-sized players, according to the report, and it will also open avenues for upstart fintechs to collaborate with banks and other financial firms.

“The environment has shifted as fintechs increasingly move from being industry disruptors to serving as partners in the financial services ecosystem. Banks should see new partnerships as a way to introduce innovative products, attract customers, control costs and reduce risk,” the report states.

Moreover, experience with open banking in other jurisdictions, such as the United Kingdom, illustrates that clients tend to prefer staying with their existing bank, “which is a good sign for the biggest institutions in a more open financial landscape.”

“Financial institutions who get ahead of the issue now will be in the best position to get an early start on their plans and strategies as well as help shape the future of Canadian banking. Leveraging their strong customer trust and combining it with the right innovation, open banking will position the Canadian banks for success in meeting customers evolving needs for digital interactions and greater control over their data,” says Paula Pereira, banking consulting leader, PwC Canada, in a statement.

“This is the right opportunity for Canada to take a leading position in providing Canadians with control over their personal financial data and to drive innovation in the financial services ecosystems” adds Pereira.

Read the PwC report here.