Opening the vault

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This article was published 02/07/2022 (1292 days ago), so information in it may no longer be current.

RBC is a three letter acronym most Canadians readily recognize.

Yet the big bank recently made an announcement regarding partnerships with two U.S. technology companies involving an acronym most Canadians likely wouldn’t identify.

In June, Canada’s largest financial institution bank unveiled two agreements — one with Envestnet/Yodlee and the other with Plaid — that will empower its millions of clients to share their financial data securely via APIs, otherwise known as “application programming interfaces.”

Indeed few of us, aside from computer geeks, will likely know what this acronym means.

But the announcement by RBC is worth digging into as it touches on many important facets of our ever-evolving financial lives.

At the heart of it is our data — the true currency of our finances and almost every other aspect of our lives.

In effect, then, RBC and other banks “are among the most significant custodians of data in the country,” says Peter Tilton, chief digital officer at RBC.

No doubt keeping our information — savings accounts, credit cards, loans, investments and insurance policies — safely under wraps from those who shouldn’t be able to access it is a pretty important job.

But over the last decade there’s been a revolution in the financial industry — essentially the rise of financial technology, or fintech.

While our banks have incorporated technology for decades — layering new ideas and tech on to existing, aged ones — plucky, innovative techpreneurs have more recently been developing financial applications (apps) we use on our mobile phones to apply for loans, trade stocks, track our spending, and more.

If you can think of a financial need, there’s an app for it. And we Canadians love them.

A recent Canadian Bankers Association survey found nearly two in three of us are using financial apps, while nearly nine in 10 bank online.

While those two data points seem congruent, they also speak to how fintech and traditional financial institutions are odd bedfellows.

On the one side, Canadians are using third-party financial apps that require a lot of their banking information. On the other is your bank, the risk-averse custodian being asked to share it.

In the past (and often presently too), the ability to share banking information with a third-party app involved essentially giving access to your bank account for the app to gather the information it required, using a technique called “screen-scraping.”

This software “reads” the screen of your online bank account, gathers all that data and then finds the appropriate information it requires. Presumably, the third-party app safely discards your data it doesn’t use from the process.

“Screen-scraping is the work-around in the absence of a standard, deliberate way of sharing data,” says Farouk Ferchichi, group president of Envestnet Data and Analytics (owner of Envestnet/Yodlee).

Although it works, in the absence of other options, you’re effectively violating the terms of your account user agreement with your bank.

If your account is hacked as a result, you may not be offered much help from your financial institution, as explained on the Financial Consumer Agency of Canada website.

In contrast, “moving towards APIs provides security, reliability and ultimately a more consistent experience to end-users,” says Mark Sam, head of Canada at Plaid.

What both Plaid and Yodlee do — among other things — is provide API services to allow third-party apps to connect securely to RBC’s vast, complex computer infrastructure to find your account and access only data you and RBC allow it to access.

In short, it creates a secure environment for you to connect these apps to your bank account, Tilton says.

“Canadians keep telling us that they want to feel in control of their data and their banking, and this is a really big step that we can only do with APIs.”

Of course there are other forces at play, and that’s where open banking comes into the picture.

“Open banking is a set of common standards where authorized participants can access a defined set of consumer financial data with client consent, using secure channels to gain access to a wider range of financial products and services,” says Abhishek Sinha, open banking leader at EY Canada.

That’s a mouthful for sure.

But essentially it is a recognition that we have a right to control our data and share it securely to use legitimate financial digital tools.

Consider it a digital bill of rights for financial consumers.

While the recent announcement by RBC is not a move to fully embrace open banking, Tilton notes, “there is no doubt some commonality.”

What’s more, the Canadian government is now following the lead of the European Union, the U.K., Australia and even China to implement an open banking framework that would essentially push financial institutions to do just what RBC is doing — using APIs to allow for secure access for third-party apps. (In the U.S. big banks are moving in this direction on their own without regulation, Sinha notes.)

So while APIs may be unfamiliar, their growing use in our online financial ecosystem is indeed good news — albeit a still-unfolding story.

As Tilton notes, RBC clients are unlikely to see the fruits of these partnerships — which would include seeing all their financials, third-party apps included, via their RBC banking app — until next year.

From a broader perspective, we’re only at the start of a longer journey toward open banking. “We’ve just passed the first mark in a marathon,” Sinha says.

“There is a long way to go.”