You more than miss the shots you don't take
Open banking is a ticking time bomb in a public policy vacuum
The fear of making a mistake can slow people from deploying their talents and making the world a better place. It’s why the mantra of failing fast and frequently is omnipresent in high-performance cultures. When asked what he thought about shooting zero for 15 from the floor, NBA superstar James Harden interjected before the reporter even finished his question: “Nothing. Keep shooting and being aggressive.”
The sclerosis-inducing fear of failure is anathema to progress, which should worry us because conventional wisdom says our governments are full of it. For a high-ranking civil servant or politician, being the star of a show in which taxpayer dollars are wasted on a program that yields poor results is a ghoulish affair. If high-performing sports teams are risk-taking, then conventional wisdom says the government is the opposite. And the opposite of risk taking is not risk aversion. It’s risk avoidance. As one senator put it, Ottawa’s is “a commitment to risk avoidance that preserves the status quo.”
But risk avoidance is something of a risky strategy. To see the dangers of risk avoidance play out in real-time, look no further than the federal government’s inaction on open banking.
Ready, set, go!
In 2019, the federal government uncovered that millions of Canadians had done a dangerous thing. Many of them didn’t even know they had done it. According to the federal government’s advisory committee on open banking, up to four million Canadians had given up their online banking usernames and passwords to technology companies unaffiliated with their banks. Canadians did this in exchange for the financial services these technology companies provided, whether it was budgeting or an all-in-one dashboard that gave users a view of all their accounts across different banks. The danger is easy to see: if they’ve voided their banking agreements, Canadians will be unable to seek recourse from their banks if their money disappears or their personal financial information is compromised.
This is when the federal government signaled that it was going to explore whether it should intervene to fix the wild west of a mess in Canada’s financial sector. The Department of Finance published a consultation paper, asking stakeholders about the merits and risks of open banking, as well as what role was appropriate for the federal government in the implementation of open banking.
Canada’s banking lobby said what I’d say if I wanted to keep the federal government from doing anything. In response to the government’s consultation, the Canadian Bankers Association wrote that, when it comes to open banking, the government should leave banks alone—or risk breaking the financial sector.
At the same time, Canada’s big banks got moving. All the way back in 2018, there were rumours that Canada’s big banks were gathering to determine their next move: bring the Financial Data Exchange (FDX) to Canada. FDX is an American group that develops technical standards which let users share financial information without the need for online banking usernames and passwords. The big banks wanted to fix the problem before the federal government fixed it for them. After stops and starts in the conversations between Canada’s banks, FDX Canada launched with 31 organizations from Canada’s financial sector.
Meanwhile, Ottawa has barely moved. The federal government hasn’t even taken the first step to implementing open banking in Canada.
Last year, Navdeep Bains, the then-Minister of Innovation, Science, and Industry, tabled privacy reforms that would have given Canadians a data-mobility right, which would have given open banking a legislative leg to stand on. I recall sitting through the technical briefings, where open banking was cited as an example of how the right was going to be operationalized in the financial sector. The only problem was the bill was a magnet for criticism—just ask privacy experts, consumer groups, business associations, and Jim Balsillie. The bill barely moved through the House of Commons before stalling and dying the moment an election was called.
Other than that, the Department of Finance and the federal government’s advisory committee have completed a couple of rounds of consultation. These led to the release of the advisory committee’s report with 34 open banking recommendations. And the Liberals committed to delivering some of the advisory committee’s recommendations by 2023. But progress has yet to be made on even the first recommendation, which is to appoint a person to start the process, let alone the ones that come after.
The Lindy effect of public policy progress — or the lack thereof
By not making any progress on the implementation of open banking, the federal government is not only failing to manage a very real risk in Canada’s financial sector. Though Canada’s big banks were successful in bringing FDX to Canada, Canadians are still giving up their usernames and passwords to share their financial information. After all the talk of “industry solutions to help meet broad public policy objectives,” the risk of monetary losses and data breaches haven’t gone away. The time bomb of consumer harm still ticks.
The federal government is also creating another risk that’s going to get harder and harder to manage: a public policy vacuum that others are rushing to fill—and that won’t be easily unfilled if and when the time comes to make public policy. The fact is that some of the whos, whens, hows, and whats of data sharing in Canada’s financial sector are questions for public policymakers to answer, not for democratically unaccountable banks and standards setting bodies.
As the banks continue building their market-driven solution, it’s going to get progressively harder to tell them to do things differently if they start going down the wrong path. When all is said and done, banks will have invested millions in building the systems and processes to deliver their market-driven open banking solution. Risk and compliance professionals. Lawyers. Product and project managers. Maybe even engineers. You’ve heard the joke about how many people it takes to change a lightbulb? The punchline is an order of magnitude worse when the people and lightbulb belong to a bank. Good luck telling banks to undo everything only to do it again.
If you think banks will be hard to move, what about the provinces? Ontario is looking to establish its own privacy regime, explaining that the federal government failed to “hit the mark on ensuring that we’re protecting people’s rights of privacy.” Three other provinces in Canada already have their own privacy regimes and are looking to modernize them. As privacy lawyers have warned, inconsistency across the regimes will increase confusion and compliance costs for businesses. I’d add that it will also make setting common rules for open banking more challenging, although not necessarily impossible.
All of this adds up to a simple yet counterintuitive idea: the longer it takes for the federal government to make progress on open banking, the longer we should expect it to take for the federal government to make progress on open banking. Think about it as a variant of the Lindy effect, the idea that the expected longevity of a non-perishable thing, such as a technology or a concept, increases with time.
Managing risks means taking them
One of the reasons the government hasn’t made any progress on delivering open banking is a sort of risk avoidance. Yes, Canada’s banks are also supremely influential, capable of slowing anything down, but they haven’t wholly captured the government. Yes, the government also has a lot of priorities ahead of open banking, but the Liberals did commit to open banking on the campaign trail, and so open banking isn’t a non-priority. Risk avoidance is part of the story.
What risks are being avoided? Burdening the banks, who are also thinking about new taxes, the threat of interchange fee regulation, changes to the Bank Act, payments modernization, central bank digital currency, and complying with the byzantine system of laws and regulations to which they’re subject—all while spending what’s left to continually turn a profit. The other risk is destabilizing the financial sector, as open banking’s promise to make the movement of money seamless could make it harder for banks to manage their deposits. What about big data breaches, which are already a challenge for our big banks who are ostensibly safe and sound? You could combine these micro-risks to make a macro-one: making a mistake and eroding trust in our financial system, which Canada’s banks are happy to sound the alarm about.
Risk avoidance comes with many flaws, but the biggest one is that risks can’t be avoided. Though the banks have moved and the government hasn’t, Canadians are still sharing their financial data by giving up their usernames and passwords. When the ticking time bomb of consumer harm goes off, banks will be burdened. The financial sector will be destabilized. Sensitive financial information will be out in the open for all to see or worse. When the risk that’s not being managed materializes, trust in our financial system will erode. Risks aren’t being avoided. They’re simply being traded off for one another.
So risk avoidance is a self-undermining strategy. Policymaking isn’t like being James Harden. But there is a common thread. You don’t just miss all the shots you don’t take. Your team also loses when your opponent outshoots you on the floor. Likewise, you fail to solve a public policy problem when you create a public policy vacuum that others are rushing to occupy, taking away ground you won’t be able to easily reclaim if things aren’t going well.