The big five banks of Canada faced questions about their preparedness for the risks of open banking during last week’s earnings calls, on the heels of news the ruling Liberal party would support a proposed road map for an open banking regime.
Leaders at the $1.4 trillion Toronto-Dominion (TD) Bank, $1.3 trillion Royal Bank of Canada (RBC) and $639.7 billion Canadian Imperial Bank of Commerce (CIBC) said they are in favor of open banking, which supports open data, or allowing consumers and small businesses to share their financial data among financial institutions and accredited third-party providers. At the same time, banking executives dismissed the idea that open data could pose a risk to customer loyalty and instead touted their banks’ work on “industry-led” solutions.
This contrasts with the Liberal-supported Advisory Committee on Open Banking roadmap, which states that neither an exclusively government-led or industry-led approach will work for Canada. Instead, the roadmap calls for a hybrid approach that combines industry efforts with regulations and government involvement.
Toronto-Dominion (TD) Bank answered questions about the potential risks of open banking during last week’s earnings call. Secure data sharing for customers has been an ongoing discussion at the bank for years, said Teri Currie, group head of Canadian Personal Banking.
“We’re very well prepared and interested in continuing to leverage data and third-party data in particular for our TD customers and think that we have some unique ability to do that,” Currie said. “By the end of this year, along with other large banks in the U.S., we’ll be able to using APIs to share data, as customers have asked us to in an appropriate and safe fashion.”
The bank reported earnings of $2.8 billion on Thursday, up from $1.8 billion in the same quarter last year.
The bank has already been working on open banking in the U.S., pointing to TD Bank’s investment last year in customer data-sharing platform Akoya, Currie added.
She also said an “industry-led solution” like that used in the U.S. makes sense for “other global markets.”
While open banking has been positioned as a response to serving the unbanked — a position staked out in the government’s report — Currie said “that’s a very small population in Canada,” one that would be better served through TD’s alliance with the Canadian postal service. The country’s postal service provides financial services, particularly in rural, remote and indigenous communities.
Currie dismissed the idea that open banking is necessary for customers to switch banks.
“Very few customers switch, but more customers switch in Canada than in other markets that have enabled this capability,” Currie said. “So I don’t see it as an access requirement, but what I do see is for customers who want to have the ability to have their data shared, we will be well-positioned to take advantage of that capability and help them meet their goals.”
Stocks of TD Bank [NYSE: TD] were trading at $65.65 down just over a half a percentage point from market open, as of market close today.
Canadian Imperial Bank of Commerce’s CEO Victor Dodig also faced questions about open banking on last week’s earnings call, along with a question about whether Canadian banks are a “victim of their own success,” given Canadian Prime Minister Justin Trudeau’s campaign promise that he will raise taxes on the country’s banks if re-elected.
CIBC reported earnings of $1.35 billion, up $930.59 million year over year.
Dodig refused to comment specifically about Trudeau’s announcement, although he did make general remarks about banks’ role in helping the country recover from COVID-19 and the value of healthy banks to pension plans. Turning to open banking, Dodig pointed out that the technology-driven global movement is good for Canada.
“And quite candidly, we embrace it,” he said. “It will make us stronger. It will make us better.”
The bank is working with industry partners in Canada to create a standard for data exchange, Dodig added.
“We’re working with some of our global banking partners, in a global open finance challenge, to make sure that some of the best ideas are coming,” he said. “I say, bring it on. … We as a bank are very aware of how to compete with that and we will continue to deliver … for our shareholders, irrespective of what kind of headwinds appear.”
CIBC [NYSE: CM] stocks were trading at $115.48 as of market close., down less than a percentage point as of market open.
Royal Bank of Canada (RBC) CEO David McKay was a little more circumspect in his response regarding open banking, saying “we think open banking can create a significant opportunity for RBC.” He deferred to Neil McLaughlin, the group head of personal and commercial banking, who worked on RBC’s open banking strategy. The industry has been collaborating to bring it to market faster, McLaughlin said.
“We’ve already land(ed) as an industry on what’s called the FDX standard,” McLaughlin said. “So, we have a format that we can start to put in place to exchange data in a safe and private way.”
McLaughlin pointed to other countries that have already adopted open banking, such as the U.K., as proof it doesn’t necessarily lead to customer turnover, which suggests risk to the bank is slim.
“There wasn’t in that market a really increase in churn, and there haven’t been many markets where you’ve really seen a lot more competition,” McLaughlin said. “I think if that does happen, if Canada were to play out differently, I think we view this as an opportunity a lot more than a risk.”
The $1.3 trillion RBC reported earnings of $3.4 billion on Wednesday, up $870 million from the previous year.
Stocks of RBC [NYSE: RY] were trading at $104, down less than one percent from market open, as of market close.
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