The lack of open banking is fueling a silent small business crisis.
With markets currently in flux, you would think Canada would redouble its efforts on financial innovation. Instead, decision makers continue to drag their feet on implementing what could make our economy more competitive and far more stable: open banking.
The immediate positive economic benefits that would come from an open system—what Canadian regulators and policymakers call “consumer-directed banking”—are fundamentally undervalued. This misalignment of priorities slows action and costs Canadians dearly. Given the fact that Canada's GDP fallen for three months straight and we have ongoing performance issues, there is no time to waste.
“The opportunity for Canada's leaders is clear: end the debate, create a robust open banking system, and finally unlock the revolutionary services our small businesses urgently need.”
The solution is to follow through on legislation and announce clear timelines for its implementation, rather than exhausting efforts to discuss theoretical benefits.
Historically, public discourse has often emphasized the impact on consumers and security concerns, but has overlooked the fact that without real-time financial data, small businesses and the communities they serve are left behind. But when the new government sits again, there is a significant opportunity to change the situation.
Meanwhile, the lack of open banking continues to negatively impact the liquidity, efficiency and growth potential of Canadian small businesses at a time when they need it most. Not to mention the hidden security risks inherent in current workarounds. If these misaligned priorities are not properly addressed, they threaten to further widen the gap between policy discussions and the practical realities facing businesses and their financial advisors.
Despite the talk of innovation and policy, real pain points such as labor-intensive manual data entry, unreliable bank flows, lack of real-time cash flow information, extended collection cycles and limited access to capital are not receiving adequate attention as key drivers for urgent implementation. As a result, the direct experiences of small business owners and the financial professionals who serve them are largely left out of the conversation.
Additionally, without a secure and standardized system, small businesses and their accountants resort to unsafe practices as workarounds. Insecure practices such as sharing banking credentials to share vital financial data, while common, pose a huge security risk, leaving businesses vulnerable to fraud and mismanagement.
To date, decision makers' focus on security and stability in the context of open banking ironically overlooks the much larger, unresolved security issues arising from the lack of a regulated structure. Fortunately, the new government's autumn budget provides a clear and timely opportunity to legislate and implement these important changes.
Companies like Xero crave clear timelines for delivery. Across the entire FinTech industry, there is a clear need for change and a willingness to collaborate to advance open banking.
Fintech companies are well aware of the barriers that our current closed system creates. However, the ecosystem remains optimistic that open banking will become a reality. We are enthusiastic and ready to help make this a reality. And the government's strong commitment to meeting delivery deadlines will spur product development and investment from both banks and fintech startups that will help the small businesses that need it most.
As a global brand operating in open systems regions like the UK, at Xero we know that open banking will be a game changer in Canada. This will help create a more competitive financial ecosystem and enable the development of new integrated financial products and services.
“We know that open banking will be a game changer in Canada.”
Any further delay in the adoption of open banking in Canada will not just be a missed opportunity for innovation, it will contribute to a silent, growing crisis in the country. 1.2 million small business. Entrepreneurs currently operate at a severe disadvantage, forced to use insecure data practices just to manage their day-to-day finances.
To address this issue, there is a need to change the debate and understanding among regulators and policy makers.
Continuing to spend too much time on theoretical gains while pursuing solutions to pressing, immediate operational problems that actively impede the growth and stability of almost 98 percent the Canadian economy will be impossible.
Innovators in fintech and financial services are poised to make open banking a reality.
This is the decisive moment for decisive action. The opportunity for Canada's leaders is clear: end the debate, create a strong open banking system, and finally open up access to the revolutionary services our small businesses urgently need.
This is critical not only to spur innovation, but also to ensure the fundamental integrity of data and the competitive future of businesses that drive the Canadian economy and create jobs.
Mike Cascone is Vice President of Government Relations and Public Policy at Xero.
If you are interested in how we can develop a successful open banking system that will positively impact Canadian small businesses, click here to find out more.
Image courtesy of Xero.
