Robert McLister: Open banking is a boon to mortgage competition and efficiency
This is a seismic disruption on all sorts of levels — including mortgage lending — and here’s why:
Anything that threatens their deposit base is a critical risk, and that’s exactly what open banking does. Big Banks’ worst nightmare is their own customers waking up to better options.
Indeed, if consumers can give permission to financial providers to find them better offers and then move money to those institutions instantly, they’re less likely to leave their cash rotting with major banks that underperform competitors on advertised deposit rates.
This has all sorts of mortgage implications. According to Canadian household survey data, 56 per cent of mortgage borrowers got their loan from the bank that holds their deposits. Lose a customer’s daily chequing account and your odds of getting their mortgage plummet.
Moreover, if deposits walk out the door, banks will be forced to use more wholesale funding, such as mortgage-backed securities, covered bonds, deposit notes, asset-backed commercial paper, and so on, all of which cost drastically more than zero interest deposits. That could eventually narrow the funding gap between big banks and their online mortgage competitors — and that matters, given that funding costs are the number one factor driving loan pricing.
Open banking could also lead to quicker mortgage pre-qualification, applications, and approvals since your data can be shared more easily between financial institutions. Imagine opening an app on your phone, asking Siri if you qualify for a mortgage, answering a few quick questions, having the app instantly check your financial history and then getting a spoken answer back, all within 60 seconds.
Last but not least, open banking portends to reduce fraud by instantly connecting mortgage lenders to unfudgeable financial data.
In short, open banking is a boon to mortgage competition and efficiency.
Now, if we could only get the powers that be in payment processing, banking and regulation to move more quickly. Five years ago, many expected Canada would have open banking by now, but there have been nothing but delays.
“We do not think open banking will be coming in the next couple of years,” RBC Capital Markets banking analyst Darko Mihelic said in a report on Monday. He’s thinking it may take “three to five years.”
Clearly, the establishment is in no rush to move things along, which is about as shocking as finding out banks enjoy profits. But it’s coming, and while the dinosaurs of Canadian banking may not be facing their asteroid moment when it arrives, they’ll at least be forced to try a hell of a lot harder for your business.
Mortgage rates
The rates displayed below are updated by the end of each day and are sourced from the Canadian Mortgage Rate Survey produced by MortgageLogic.news. Postmedia and Imaginative. Online Inc., parent of MortgageLogic.news, are compensated by certain mortgage providers when you click on their links in the charts.