Why fintechs look forward to open banking in Canada

If open banking becomes available to Canadians in 2023, fintechs could find opportunities to cross-sell financial services including insurance, a venture capital expert suggests.

Generally speaking, fintechs are looking forward to open banking coming into effect, said Laviva Mazhar, Montreal-based investment associate with Luge Capital, in an interview Monday with Canadian Underwriter.

“The access that they could get, to information about what financial products a consumer has and their transactional data, would really help fintechs understand what they could offer to those consumers.”

In its final report issued Aug. 4, the Advisory Committee on Open Banking recommended that the “initial phase” of open banking, in Canada, be up and running by January, 2023. That committee was appointed in 2018 by the federal government.

The committee has also referred to open banking as consumer-directed finance. The general idea is consumers could instruct their financial institutions to share their banking data with other parties chosen by the consumer. Third parties could include fintechs.

“Open banking can enable banks and third-party providers to obtain a more detailed picture, of what products and services a consumer is using,” said Mazhar.

“Fintechs could gain insights about that customer so they could upsell and cross sell solutions. For example, a third party could determine, from a consumer’s banking data, that the consumer is a tenant and not a homeowner. On the other hand, the banking data might show mortgage payments, indicating the consumer is a property owner.”

In its Aug. 4 final report, the federal advisory committee recommended that insurers be restricted from using customers’ banking data customers for underwriting, in the first phase of open banking.

“There is fear of the potential for discrimination,” said Mazhar.

But if a third party – such as a fintech – is able to use a customer’s banking data to approach the consumer about their insurance needs, that is not the same thing as using the data for underwriting. If a third party is only using the data to gain insight into the consumer’s potential insurance needs, then the third party is not using the data to make a decision on whether or not to offer coverage, or on pricing, she said.

Luge Capital has offices in Montreal and Toronto. The firm provides money to insurtech and fintech startups. Luge Capital’s investors include Industrial Alliance, La Capitale, Sun Life and Desjardins, among others.

Feature image via iStock.com/Ridofranz