Why clients should be cautioned about fintech services

In the absence of open banking, clients could be exposing themselves to privacy breaches by sharing their online banking details with technology providers that are not subject to banking regulations, the Financial Consumer Agency of Canada warns.

Advisors should tell clients to be careful when using unregulated fintech applications, said Supriya Syal, deputy commissioner of research, policy and education with the FCAC. Examples of such apps include billing, budgeting and payment providers and cryptocurrency services.

Greater volume of data-sharing transactions among a diverse set of product providers — both banks and non-banks — increases the risk of cybersecurity breaches, the FCAC warned in a new report.

Open banking, which is not available in Canada yet, allows a financial institution to share client account details (with consent) with a third party, without the client having to share their login details and password.

Currently, when consumers share banking information with unregulated fintechs, methods such as screen scraping are used to share their user names and passwords, Syal said, and that data is then stored.

As such, “Sharing this information may violate the consumer’s electronic access agreements with banks and expose them to security, privacy and liability risks,” she said. “In open banking, consumer data is securely transferred between the bank and the third party.”

An FCAC-commissioned survey released Thursday suggested nearly one in three Canadians incorrectly assumes that the protections they have when using a fintech application (to track finances, manage money or make payments, for example) are the same as the protections they have from a regulated entity such as a bank.

The 5,470 respondents were asked whether they agree with the (false) statement that consumers’ legal protections are the same whether using a bank or fintech. Nearly a third (32%) agreed, another 32% didn’t know and 19% neither agreed nor disagreed.

Only 18% of respondents correctly responded that the security and privacy protections from fintech applications are not the same as from regulated entities, Syal said.

“If you disabuse them of this notion — if you tell them that they are not protected — most Canadians would stop using fintech products and services,” she said.

After hearing the definition of open banking, 15% of respondents said they would participate in an open banking system, 29% said “maybe” and 52% said they would not.

The survey results indicated Canadians would want certain legal protections in an open banking system, Syal said, such as protection from losses, ability to revoke consent, a requirement for open banking providers to report data breaches and an easy complaints process.

One in four respondents (26%) said they use fintech saving and investing accounts, including robo-advisors. Six per cent said they had previously used fintech saving and investing accounts, 38% said they might try them in the future, 20% said they wouldn’t try them and 9% didn’t know.

Most respondents (three in four) hadn’t heard of fintech, which the FCAC defined to respondents as a technology company that offers financial services online only, often through an app.

“Few Canadians have heard of open banking, and of the ones who heard, few actually understand it,” Syal said.

The survey will help inform the approach to open banking in Canada, in particular financial consumer protection policies and consumer education, the FCAC said in a release. “Strong and consistent consumer protections and education will be essential to build trust, understanding and interest in open banking among Canadians,” it said.

The phone and web survey was conducted from May 16 to June 28, 2022, and the margin of error was 1.32 percentage points, 19 times out of 20.