Take a minute to imagine what it would be like as a university student or recent graduate to have the opportunity to start that side (or main) hustle you’ve always dreamed of — that small boutique company with massive scalable potential that you’ve spent countless hours contemplating. You’ve already identified a need in the market (check), you’ve developed a solution to that need (check), and you know exactly how to get it off the ground (check).
Chances are what’s stopping you is one thing: money. Capital. It turns out, in many countries in the world, this problem is less of a problem thanks to open banking and fintech.
By unleashing the sleeping giant that is open banking and fintech, countries like the U.K have not only provided significant opportunities to entrepreneurs across the country but have also (and more importantly) been able to serve the underbanked and unbanked parts of their country. This may all seem too good to be true, but in places like the U.K, the potential of open banking and fintech is the biggest open secret around.
Lemonade, Monzo, Starling, Clearbanc, Shopify; and that’s just the tip of the iceberg. These are just a handful of names in the fintech space that have attracted serious attention and ballooning valuations.
So, what exactly is open banking and fintech? Fintech and open banking are simply the conduits that we use to achieve the democratization of our finances. Fintech is defined as the blend of finance and technology, and open banking means customer control of financial data sharing. We’ll explore these ideas in more detail to come. They allow you to get access to money you might not have had access to, receive banking products and services at a much cheaper rate than you currently do, adapted to your needs, and ultimately give you complete control over your personal finances and the risk(s) that you are comfortable taking.
That’s where Senator Colin Deacon comes in. Haven’t heard of him? There’s probably a good reason for that. The constant cloud of politicking, partisanship, and pettiness in Ottawa makes people like Senator Deacon easy to miss. In reality, Senator Deacon is a first-rate public servant that gracefully advocates for important issues like open banking and fintech that have the potential to change our collective lives. An Independent Senator from Nova Scotia serving since 2018, Senator Deacon has largely spent his time advocating relentlessly in his capacity to move Canada forward when it comes to democratizing our money and personal banking through fintech and open banking (among other things).
On October 13th, Senator Deacon spoke to the students of Dalhousie’s very own fintech course in the Rowe School of Business —the only university fintech course in all of Atlantic Canada. The ideas explored throughout this article are discussed in far greater detail in the course, developed and taught by Professor Maria Pacurar, which gives students a first-hand look at an industry that is changing by the day.
What was abundantly clear about the Senator is that he’s the most enthusiastic and passionate person you will meet when it comes to this subject, and rightly so. Despite his persistent advocacy on this issue, he came with a slight word of caution. He’s fearful that Finance Canada has constantly kicked the can down the road and has not made any real progress on this issue. However, it’s not all bad news; he remains optimistic that under the new leadership of Minister Chrystia Freeland, Finance Canada can and should resurrect this issue.
The case the Senator laid out in favour of open banking and fintech is persuasive, compelling, and genuinely exciting. To him, it’s clear how Canada should go about this, why we should go about this, and when we should go about this. To do the Senator and his advocacy justice, I’ll provide the roadmap to success that the Senator sees to achieving the how, what, and when.
In the Senator’s eyes, fintechs are “absolutely the most fantastic customer-centric innovations that we could ask for.” An idea that he shares with many young people is that data and control of our own data is a human right. By limiting restrictions and re-evaluating legislation that hinders fintechs from starting and operating in Canada, the government can give way to the fintech industry to disrupt the status quo and pressure the incumbents (banks) to be more innovative. What this will mean for the everyday consumer of banking products is more options, less bureaucracy, and opportunities for you and your community that weren’t even in the realm of consideration before.
This isn’t just a banking or technology issue, but also a pressing social issue. As the Senator points out, there are so many underbanked and unbanked people in Canada.
“If you’re trying to get things done in your life, and you say, ‘boy, if I could borrow this, I could achieve that,’” he explains. “But you are denied access to that credit; that’s now a social issue. That’s not just a banking issue, you’re denying economic progress to some of our marginalized citizens, and that’s a big issue.”
A Philadelphia Federal Reserve report has proven that fintechs such as LendingClub have been successful in lending money to traditionally higher risk borrowers. What’s more, their losses to those borrowers have been lower than the expected loss on ‘average customers’. Meaning that so-called high-risk borrowers might not be as high risk as many think.
Risk potential: that pesky little concept in the back of your mind before you take any major decision. It turns out, people in Ottawa care about it too, a lot. Critics and skeptics of open banking and fintech think that this kind of disruption is not welcome because we already have a robust banking sector renown worldwide for its stability.
And while that may be true in a country like Canada, the existing banks have gotten comfortable to the point that they don’t feel it necessary to continue to innovate and make your bill cheaper at the end of the month. These critics neglect that different people need different financial products and services, especially at different life stages.
Another common misconception is the notion that somehow open banking is unsecure, which is why the Canadian government opted for the term ‘consumer-directed finance’ instead, because it’s really about consumer control, not a lack of security.
Regardless of their criticism, Senator Deacon doesn’t see success as being mutually exclusive. It’s not an issue of fintechs winning and existing banks losing; he sees the path forward as supporting our incumbent organizations (banks) because they’re the foundation of our economy and empowering them with the innovation and disruptive benefits of fintechs. From a regulatory perspective, he believes Ottawa needs to protect and ensure three things: (1) good governance, (2) clear standards with data and data sharing, and (3) data portability, also known as giving consumers control over what happens with their data.
Now — like, right now..
Although Canada lags behind our peers on this issue, Senator Deacon is hopeful that the next generation will usher in a new era that will tackle this issue head-on – because it’s the right thing to do.
Many thanks to Senator Deacon for being a beacon of knowledge on this issue and bringing it to the forefront in Canada and in Ottawa. If you want to listen to the entire fireside chat he did with the students from the Introduction to FinTech (COMM 2220) course, check it out below.