What is FinTech?
Financial technology (FinTech) is a term that has been around for many years, however, has become more popular in recent years due to the rapid innovation of technology and its many uses. These new technologies are helping individuals with their daily tasks and are removing redundant tasks that are time consuming and costly, such as, financial reporting, automated documentation in the banking industry, and more detailed and tailored investment analyses. With the implementation of these technologies, employees and businesses can focus on key components that impact the success of the company. Customer satisfaction is at the forefront of these components as competition continues to rise and prices for financial services such as loans and mortgages become visible since open banking allows customers to see prices available at all Financial Institutions. These technologies can help align information across multiple platforms, organizations and industries, and Artificial Intelligence (AI) can provide credible and more precise analysis than humans. Although these technologies will help consumers by providing them a more tailored service, they will change the course of the financial industry as we know it.
Open Banking
What is it?
Simply put, open banking is giving financial institutions and other third-party companies access to your personal and financial information. The goal is to help facilitate business or personal transactions related to purchases, payments, loans and more for ease of information sharing. For example, if you want to get a mortgage for your house or re-mortgage your house, you can download an app and find the best rates across all financial institutions. Companies like Nesto are doing this and are improving the lives of Canadians. Open banking means that you are no longer confined to the information from your bank. A similar example is the change from cell phone numbers being restricted to a single carrier, to companies allowing customers to change providers and keep their number (Rangachari, 2018). Open banking encourages the freedom for customers to use services from various financial institutions rather than being conformed to their current financial institution. Through the ease of information sharing customers can seek the best services without worrying about any barriers, resulting in better customer satisfaction. The FinTech Forum panelists focused on banks as the main implementor of open banking, other businesses such as online retailers plan “to tap directly into consumer account data to drive down transaction fees, tailor products, and create innovative loyalty programmes” (Finextra).
Due to the thousands of bank branches in the USA and the large population, the push for open banking is strong. Customers want the freedom and ease of doing business at the branch of their choice, reducing the barriers and frustration related to sharing personal and banking information across multiple bank branches throughout the country.(Rangachari, 2018). According to Bill Harris, the implementation of open banking is prominent in the US because customers are migrating towards the financial institutions that are providing open banking (2018). For this reason, banks in the US have to adopt this new banking concept or fall behind their competitors.
Open Banking in Canada - Implementation and Risks
Contrary to the US, Canada’s major financial institutions have not been as open to adopting open banking because of the risks involved, notably relating to data breaches. Canadians want to ensure that their personal and financial information is protected from any outside party, and that banks will use this information ethically (Dewitt, 2018). As a result, Canadian banks do not want to inherit the responsibility of protecting this information without some type of government backing. When third-party companies that partner with banks to create online services experience a data breach, the information entrusted to the bank will be compromised (Rangachari, 2018). This is problematic for banks because despite the error being with another entity, they will be confronted with negative publicity, public distrust and possibly even losses. By working closely with the government, regulatory boards such as the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC) can educate the public and can work with all parties to take ownership and accountability for issues. All the panel members from the open banking panels agreed that government leadership is needed to get open banking started in Canada, and Gavin Littlejohn added that if Canada does not react fast enough, it could be detrimental to the success of Canadian banking industry (2018).
What FinTech Means for Insurance Companies
As FinTech continues to evolve, new technologies arise to help different sectors, such as the insurance industry. Éric Savard from SSQ Insurance stated that they are partnering with iA Financial Group to shift from a curative model to a preventative model; meaning, instead of helping people cope financially with their sicknesses or disabilities, they want to prevent these events from happening (2018). He went on to explain how they have partnered with two FinTech companies: Mr. Young –an AI powered bot that helps individuals cope with anxiety while avoiding the additional stress of an in-person session– and Amelia –a wealth management bot that provides investment recommendations based on financial analysis of clients’ current and future needs. By integrating these technologies, these insurance companies can provide more tailored products to their clients. By using the information provided by Amelia, they can be more precise on how much protection each client needs, therefore reducing unnecessary expenses for their clients. Mr. Young will help clients have a better quality of life by helping them cope with stress, prevent burnouts and time away from work, reducing the potential economic burden to the family.
Closing Remarks
The FinTech industry has been growing exponentially over the last decade and will continue to grow for years to come. Through open banking, these technologies will change the way financial institutions conduct business and will provide the Canadian population with a wide variety of new and easy to use platforms for all their banking and investment needs. Financial institutions and third-party companies must build confidence in the public, ensuring that their information is safe. Furthermore, the OSFI and FCAC regulatory boards must align with financial institutions to help with the implementation of open banking in Canada before they fall too far behind the US and other international countries that are ahead of the curve. Lastly, FinTech companies have changed the insurance industry as we know it, and will continue to do so through partnerships. They are evolving the industry into one that active provides care for their clients. The 2018 FinTech Forum gave me a new outlook on the Finance industry and the disruption that it will face in the coming years. Finance Majors like myself, will need to incorporate some type of technological skill to better succeed in this new evolving industry. The Forum gave me the opportunity to learn about the different aspects of FinTechs and their uses, and has allowed me to understand where I would like to position myself in this industry.