May 8, 2021 by Greg Meckbach
Open banking rules could help create a level playing field between technology companies and the insurance industry, speakers suggested at a recent virtual conference.
Bringing in “consumer-directed finance” will help consumers benefit from a broader range of financial products and services, the federal government-appointed Advisory Committee on Open Banking recommended in January 2020.
The idea of consumer-directed finance is to let consumers give their banks instructions to share their banking data with other parties chosen by the consumer. This in turn could give fintechs increased access to consumer financial transaction data, which the fintechs could use to develop products more tailored to consumer needs and preferences.
“There is a potential loophole, [in which] a fintech — which is neither bank nor an insurance provider — could be a go-between for [consumers’ financial] data, and people have talked about it,” said Danish Yusuf, founder and CEO of Zensurance. “Let’s try to drive the regulatory framework fast if we don’t want the loophole there.”
Yusuf made his remarks April 26 during a panel discussion, Are You Ready for Open Banking, held at InsurTech North. The conference was produced by MSA Research.
In Canada, the federally-appointed committee uses the term “consumer-directed finance” instead of open banking. The committee warned that sensitive financial information needs to remain secure, private and in the control of the consumer.
“There is no market in the world where there is true open banking in the absence of some type of government mandate and prescribed policy standards around how open banking is delivered,” Steve Boms, executive director of the London-based Financial Data and Technology Association (FDATA), said during the InsurTech North open banking panel. The not-for-profit represents fintechs operating in open banking.
One reason why brokers have a vested interest in open banking regulation in Canada is because of the way Uber and Airbnb disrupted the taxi and hotel industries respectively, Yusuf suggested.
“Regulation will make the playing field much more even. If despite levelling the playing field, the tech companies eat your lunch, then you deserve it,” he said.
Yusuf noted the federal Bank Act is normally reviewed every five years.
“The concept of open banking does not necessarily mean banking data merges with insurance data,” Yusuf said. “The most basic thing is making the insurance aspect of it available on its own so that people can innovate on top of it, so the two can run in parallel.”
Steve Masnyk, a long-time insurance lobbyist and current managing director of the Canadian Association of Managing General Agents, told Canadian Underwriter earlier that if technology firms were to sell insurance, they would need to be regulated somehow.
“The government has to be very cautious how they put together an open banking framework,” Masnyk told Canadian Underwriter earlier.
At the time, Masnyk said it’s possible that a large tech company like Amazon would want to get involved in the insurance business if Canada moves forward with consumer-directed finance.
Feature image via iStock.com/FG Trade