For lenders, one of the biggest challenges in underwriting is not necessarily a lack of data. It is having the right data at the right point in the decision-making process.
A credit report can tell a lender how an applicant has managed credit obligations in the past, while income documents can provide evidence of what they currently earn. Bank statements can provide additional context, but manually reviewing them can be time-consuming, particularly when lenders need to assess large volumes of applications.
Open banking introduces another way to bring these pieces of information together by allowing customers to securely and explicitly authorize access to their financial data. Canada's move toward consumer-driven banking, commonly referred to as open banking, is expected to make this kind of data sharing more standardized and secure.
The federal framework is designed to give consumers greater control over their financial information while allowing accredited participants to exchange in-scope financial data with consumer authorization.
The government has specifically identified improved access to financial services, greater competition, and faster loan adjudication among the potential benefits of the framework.
For lenders, however, their concerns shouldn’t simply be whether open banking will make more financial data available, but more about what they can do with that information.
When transaction and account data are incorporated into existing underwriting processes, they can help lenders make several decisions with greater context, particularly regarding income, affordability, cash flow, and applicants with limited traditional credit information.
1. Income Verification
One of the most basic questions in lending is also one of the most important: Does the applicant have the income they claim, and how reliable is that income?
Traditionally, lenders have answered this question using payslips, employment letters, tax documents and bank statements. These documents remain important, but they can make income verification a manual process.
Customers have to obtain and upload documents, lenders have to review them, and inconsistencies can lead to additional requests before an application can progress. Open banking can provide another source of evidence.
Under Canada's proposed framework, in-scope data includes account, balance, transaction, and product information for areas such as deposits, investments, and lending products. Customers can request that participating entities share this information in a standardized, machine-readable format.
For a lender, transaction data could provide visibility into recurring deposit and income patterns, rather than relying solely on a document provided at the beginning of an application.
This becomes particularly useful for applicants whose income does not fit a conventional salaried model, such as those with multiple income sources or who are paid per gig.
In these cases, a payslip may capture only one part of the applicant's financial situation. However, transaction history can provide a broader view of how money enters and leaves an account. The important distinction is that open banking should supplement, rather than automatically replace, existing income verification.
Transaction data does not tell a lender whether every deposit is employment income, just as a payslip does not necessarily demonstrate overall financial stability. The value comes from combining relevant sources and giving underwriting teams more evidence to work with.
For lenders, this can reduce documentation friction while creating a more dynamic approach to income assessment.
2. Affordability Assessment
While income verification is more about confirming how much a customer earns, affordability assessment checks how much a customer can reasonably afford to pay.
For example, two applicants could each earn $6,000 a month and have very different financial positions. One may have substantial existing debt, high housing costs, and several recurring obligations, and the other may have fewer commitments and considerably more disposable income.
A lending model that looks primarily at income can miss that distinction. Transaction data can provide additional context by showing recurring financial commitments and patterns of account activity.
Depending on the available information and the lender's methodology, this could help assess expenses, existing obligations, cash flow, and the customer's capacity to absorb an additional payment.
This is one reason the Canadian government has identified loan adjudication as a potential use case for consumer-driven banking. Its framework specifically states that consumers will be able to share financial data for loan adjudication, potentially leading to greater choice in borrowing options and better pricing.
The same framework also identifies the ability to use financial information, including timely rental-payment data, to demonstrate creditworthiness and potentially improve access to credit. For lenders, the significance goes beyond automation.
Better access to financial information can improve the inputs to affordability models, ultimately producing more informed decisions. That matters particularly for borrowers whose financial circumstances are not well represented by a conventional credit file.
3. Cash-Flow and Financial Stability Assessment
A credit report is valuable because it provides a history of borrowing and repayment, but it is not designed to show everything happening in a customer's finances today.
An applicant can have a strong credit history while experiencing a recent change in income, and another may have limited credit history but demonstrate stable cash flow and consistent financial behavior. Transaction data can help lenders see some of these differences.
By analyzing account activity over time, lenders can identify patterns in income, recurring expenses, balances, and other financial activity. These patterns can add context to a credit decision and help lenders distinguish between applicants whose financial circumstances may look similar on paper but behave differently in practice.
Furthermore, examining transaction patterns can provide additional evidence of income frequency and consistency, as well as the timing of major financial commitments.
The same principle can apply when assessing financial stress. Changes in account balances, income consistency, or recurring obligations may provide signals that are not immediately visible in a conventional credit report.
None of these signals should be treated as an automatic proxy for creditworthiness. Financial behavior requires context, and transaction data can contain noise. The value lies in using it as another layer within a broader risk model.
This is an important distinction for lenders considering open banking: more data does not automatically mean better underwriting. Better underwriting comes from connecting relevant data to the decisions it is intended to improve.
4. Assessing Thin-File Applicants
One of the most important applications of open banking may be its ability to provide additional context for customers who have limited traditional credit information.
A thin credit file does not necessarily indicate that someone is a high-risk borrower. It means the lender has limited information within the relevant credit reporting system.
For example, a young consumer who has only recently entered the credit market may have little borrowing history despite having stable employment and responsible financial habits. The same can be true for someone who has historically used little formal credit. It is also particularly relevant to newcomers.
A person who has recently arrived in Canada may have years of financial experience in another country but little or no Canadian credit history. From the perspective of a domestic credit bureau, the customer's file may be limited. From the perspective of the individual's actual financial life, however, there may be substantial information elsewhere.
Open banking can help with part of this problem by giving lenders access to current financial information.
For example, an applicant with a limited credit file may be able to demonstrate consistent income, manageable expenses, and stable account activity. Those signals do not automatically make the applicant creditworthy, but they can give the lender additional information that would otherwise be missing.
Canada's government has explicitly identified credit-building as one potential use case for consumer-driven banking, including the use of transaction and rental data to demonstrate creditworthiness.
That creates an important opportunity for lenders seeking to improve financial inclusion without compromising underwriting discipline. Instead of treating a thin file as the conclusion of the assessment, lenders can potentially use additional financial information to determine whether the applicant can be assessed with greater confidence.
5. Making Better Lending Decisions for Newcomers
Newcomer lending exposes both the potential and the limitations of open banking.
Imagine a professional who arrives in Canada after spending ten years working and managing credit in another country. They secure employment, open a Canadian bank account, and begin receiving a regular salary. Their current financial position may be strong, but their Canadian credit file is still developing.
Open banking can help a lender understand the current part of that story. With customer authorization, transaction data could provide information about income deposits, spending patterns, recurring obligations and affordability. That is valuable because it provides the lender with greater visibility into the applicant's financial situation in Canada.
However, Canadian open banking does not automatically make a newcomer's previous international credit history available to Canadian lenders. The framework's initial scope covers data held by participating entities in Canada, including account, balance, transaction and product data.
It does not create a universal mechanism for importing a person's credit history from every country where they have previously lived. That means a newcomer who spent years responsibly repaying loans in another market could still have a significant gap in their Canadian credit profile.
This is where open banking and cross-border financial data need to be viewed as complementary. Canada's open banking can look into a customer’s current financial position, while cross-border credit data can assess their managed financial obligations before they arrive in the country.
What Lenders Should Be Preparing For
Canada's consumer-driven banking framework is still developing, so lenders should not think of today's capabilities as the final form of open banking.
The federal government has outlined an initial framework covering data such as account information, balances, transactions and lending products, with consumer consent and standardized technical requirements at its core.
Future development could expand the functionality available within the ecosystem. Therefore, lenders should consider how permissioned data fits into existing underwriting models, how information is stored and governed, which data points are genuinely predictive, and how customers are informed about what they are authorizing.
Consumer trust will be especially important. FCAC research found that security, control over personal data, transparency, and recourse were among the most important consumer-protection expectations regarding open banking.
That research predates Canada's current framework, but it highlights that access to financial data only works when customers trust the system through which their data is shared. The regulatory architecture is moving in that direction.
The Bank of Canada says its supervisory role will include governance, risk management and operational resilience for participating entities, while the Consumer-Driven Banking Advisory Committee is working with industry representatives on implementation and industry readiness.
For lenders, this means preparation should extend beyond API integration. The organizations that extract the most value from consumer-driven banking will need to connect data access to sound underwriting practices, customer consent, and clear business outcomes.
The Bigger Opportunity Is Better Decision-Making
Open banking will not make every lending decision easier, nor will it eliminate the need for credit bureaus, identity verification, or other forms of financial information.
Its significance is that it provides customers with a standardized mechanism to securely share more of the financial information lenders need to make decisions. That can improve income verification by giving lenders greater visibility into actual account activity.
It can strengthen affordability assessments by providing additional context on financial commitments and add useful cash-flow signals to traditional credit models, giving lenders more information when assessing thin-file applicants.
For newcomers, however, the opportunity and the limitation are even clearer. Open banking can help lenders understand a newcomer's financial position after the newcomer enters Canada's financial system. It does not automatically make the financial history they built elsewhere portable across borders.
That is why the future of inclusive lending is unlikely to be built around open banking alone. It will require a broader financial data infrastructure in which domestic financial behavior can be combined with verified identity, international credit history, and other relevant financial signals.
For lenders, the objective is not simply to collect more data. It is to build a more complete and decision-ready picture of the customer. That is the real promise of open banking.
For businesses serving customers whose financial lives cross borders, the next step is making sure the data that matters does not stop at the border.
Zeeh helps businesses access global identity verification, cross-border credit history, and financial insights through a unified infrastructure layer. To explore how this can support your lending and underwriting workflows, book a demo or talk to our sales team.
