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This FinTech Stock Trend is Moving the Stock Market!

Canadian banks like Royal Bank of Canada (TSX:RY)(NYSE:RY) and TD Bank (TSX:TD)(NYSE:TD) are considering whether open banking practices endanger consumer information. Open banking refers to the capability of third-party service providers to retrieve a consumer’s banking information.

These services include fintech innovations like those which aggregate financial information from different companies. Many banks even allow you to connect accounts from other loan providers so you can more easily track your bill payments and income.

The technology used to connect these accounts, however, opens the door to cybersecurity threats. These cybersecurity threats will likely be a significant driver for market volatility in the next 10 years. Banking investors in the TSX will need to keep an eye on which banks are partnering with fintechs to give customers safe and secure digital experiences.

RBC and TD Bank partner with fintech

Fintech innovations are dotting Canada’s landscape of technology startups. In response, RBC and TD Bank have begun looking into partnerships to expand upon consumer products. Unfortunately, the APIs connecting your bank with your mobile payment application or budget tracker are the prime targets for hackers.

Thus, Canadian banking institutions need to examine the legal environment surrounding open banking to protect themselves adequately against the risks involved. Banking institutions and the fintech startups are responsible for safeguarding your information and ensuring safe transfer between providers.

If a hacker manages to access your information via one of the APIs, the legal system needs to know which service provider to hold accountable. More importantly, consumers need to know what both parties are doing to protect their data.

Investors concerned about cybersecurity

When hackers expose customer data stored by a corporation, the stock market gets more than jittery. Stocks have taken hard falls – and been dragged through expensive lawsuits after the news media exposes a business for a data breach.

RBC and TD Bank are well-trusted institutions, but if one of their fintech partners were to suffer a data breach, investors might not be as friendly. The security protocols behind banking APIs connecting the third-party provider to your bank account are well-known among experienced programmers. All it takes is one malicious coder to hack into and steal information.

Consumers would think that a technology startup should have excellent cybersecurity protection. That’s not necessarily the case. Many of them might not be ready to protect against an attack on their system.

These threats are what banks and the Government of Canada need to discuss. RBC and TD Bank have the resources necessary to secure the information exchange process involved in the API connections. When they partner with the fintech startups, they will need to help the third-party providers secure the information after retrieval.

Foolish takeaway

Banks don’t consider fintech the competition. The industry treat fintech startups as welcomed partners in the industry, more so as banks compete to enhance digital consumer experiences.

The benevolent feelings toward fintech don’t come without hesitation; the legal departments of these big banks have a lot of concerns. RBC and TD Bank will need to expand their cybersecurity teams to better advise the fintech startups on how to protect your information.

Canadian investors should track the progress on open banking initiatives in Canada and what it means for their data privacy and security.

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Fool contributor Debra Ray has no position in any of the stocks mentioned.

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