Money has built society. As a technology for holding and exchanging value, money has evolved over millennia and is therefore fit-for-purpose. Money is the universal incentive-mechanism that holds society together like glue. But money is changing rapidly as the 21st century takes shape.
This week in Toronto, the Munk School at the University of Toronto hosts The Future of Money.
Fintech.ca sat down with the event’s founder, Scott McDonald, to discuss open banking, to explore currency’s role in society, and to learn more about The Future of Money.
A Senior Fellow at Munk School, McDonald serves as a Principal within a prominent tech-finance sector in Toronto. He is deeply engaged in the advancement of machine learning and AI technologies, particularly in fostering Responsible AI initiatives for Canadians. His collaborative efforts span across various digital domains including digital currencies, consumer payments, music, entertainment, and robotics.
Can you explain what open banking is and how it’s transforming the financial sector?
SM: Open banking refers to the practice of sharing financial information securely with other financial service providers through APIs (Application Programming Interface). It aims to enhance competition, innovation, and efficiency in the financial sector by allowing customers to access a wider range of products and services. Consumers are able to have more control over their financial data and opening banking fosters the development of new financial technology and services.
In what ways does open banking empower individuals and businesses financially?
SM: Open banking provides customers and businesses with access to a wider range of financial services, secured transparency, and seamless data sharing between different financial institutions. This allows for increased innovation of financial products and services while also driving competition to offer better deals and options for consumers and businesses alike.
Open banking has begun to pave the way for more financial products and services that are tailored to the specific needs of consumers or businesses. Offering them access to efficiency and changing their banking needs from business loans to home loans.
This is done through data. Financial institutions hold large amounts of owned data that are used to drive innovation. By analyzing this data, banking is able to assess different risks and opportunities based on what your needs are. Due to the strict securities of traditional banking this data is often held onto and thus why open banking is more empowering for the financial wealth of consumers and businesses.
What are some of the challenges and risks associated with open banking, particularly regarding customer experience?
SM: There are some risks and challenges that are associated with open banking. The ones that are associated with customer experience will develop overtime to help become more accessible and efficient. Below are the challenges:
- Regulatory Compliance: Open banking initiatives must adhere to regulatory requirements, which can sometimes be complex and vary across regions. Ensuring compliance with these regulations is crucial to maintain trust and security in customer interactions.
- Data Security and Privacy: With the increase in data sharing among multiple financial institutions, the risk of data breaches and privacy invasions escalates. Open banking does work to create systems to help better safeguard sensitive customer information.
- Integration and Standardization: The seamless integration of various systems and standardization of processes pose challenges in open banking environments. Inconsistencies in data formats or interoperability issues can impact the overall customer experience.
- Scalability: As open banking ecosystems expand, scalability becomes a critical factor. Ensuring that systems can handle increased volumes of transactions and interactions without compromising performance is important for positive customer experience.
- User Experience: The user experience within open banking setups needs to be intuitive, efficient, and secure. Any disruptions or complexities in the user journey could lead to dissatisfaction and deter customers from engaging with open banking services.
What are the benefits/ opportunities of open banking for consumers and businesses?
SM: The benefits and opportunities of open banking for consumers and businesses are vast. For consumers, open banking grants absolute control over their financial information, allowing them to decide who can access their banking data and to what extent. It provides the convenience of a unified view of data from multiple bank accounts, aiding in better financial management. With explicit customer permission, third parties can utilize this data to recommend tailored financial products like credit card options and loans that align with individual financial circumstances and goals.
For businesses, open banking offers access to customers’ financial data with consent, facilitating the provision of more personalized products and services. It streamlines financial processes such as accounting and compliance, leading to improved operational efficiency. Additionally, businesses can explore new sources of financing to boost revenue generation. Open banking also aids in fraud detection and prevention, enhancing the overall customer experience.
Moreover, legacy financial institutions can leverage their customer base and data to innovate and deliver new services, fostering competition with FinTech firms and other emerging market players. This increased competition ultimately enhances customer experience, loyalty, and security efforts while promoting compliance and regulatory adherence.
What is the Future of Money conference and how is opening banking going to be addressed?
SM: Money has built society. As a technology for holding and exchanging value, money has evolved over millennia and is therefore fit-for-purpose. Money is the universal incentive-mechanism that holds society together like glue. But money is changing rapidly as the 21st century takes shape. This change introduces opportunities to reinvent currency and commerce at a foundational level. It offers new capabilities for the evolving role of banking in the consumer value-chain. It presents the promise of greater economic inclusion across the world. But this change also presents peril. It risks undermining centuries of great sacrifice to build the society we have today, imperfect as it is and always a work-in-progress. As such the importance of this topic begs a broad discussion across the public arena. This event seeks to host that conversation.
The full-day event will gather together international scholars, governors of global central banks, chief executives from top Canadian banks, fintech and AI companies, government officials and heads of regulators.
What other conversations will be taking place at the Future of Money conference?
SM: The event takes place 2:00 to 7:00 p.m. at Koerner Hall, 273 Bloor Street West, Toronto, Ontario covering these three topics for discussion:
- The Future of Money: Understanding how open banking, digital currencies and payment modernization can foster economic innovation while preserving stability and rethinking the fundamental purpose of money in society.
- The Future of Currency: Exploring with global central banks the future of the international monetary system and the high-stakes geopolitical contest of currencies.
- The Future of AI: Stewardship of beneficial and responsible artificial intelligence to realize the economic and social promise of this powerful technology.
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