Spiralem's Bruno Diniz explores the evolution of Open Finance in Latin America, its impact, and future prospects.
Open Finance has evolved from a UK concept to a reality in Brazil's final implementation phase. Globally, discussions about broad regulatory frameworks for financial data sharing vary, but the debate on data sharing rights, benefits, and sanctions is inevitable as the global economy increasingly relies on data and AI.
Although some people might argue that the Open finance promise is yet to be fulfilled, something that was subject to rounds of discussion in the UK, there is objective evidence of its benefits for individuals, companies, and financial services providers around the globe.
Besides that, the infrastructural layer represented by the Open Finance framework can be integrated with other infrastructures (like fast payments systems and CBDCs) unlocking new possibilities in the market through the convergence of these capabilities.
Next, let’s review the current status of Open Finance, the developments in LATAM, and what might come next, as it connects to other financial innovations and infrastructures.
Worldwide, with or without a specific regulated framework, financial institutions are recognising the essential role of advanced digital ecosystems to optimise services, improve customer experiences, and promote financial inclusivity.
Countries like the United Kingdom have already made significant strides in leveraging Open Banking to boost competition, innovation, and transparency in the financial services sector. The transition from Open Banking to Open Finance signifies a broader view of the customer’s financial life, allowing seamless integration of various financial products and services. Not much progress happened in this process lately, but that seems to be an inevitable path which is connected to a broader smart data initiative in the country (opening and facilitating data sharing across various segments).
In Brazil, some players are already able to use Open Finance capabilities to deliver valuable solutions to their clients while leveraging results and opportunities for their businesses. One of the most emblematic cases is Mercado Pago, the fintech unit of the Latin American giant Mercado Libre.
The institution recently surpassed the mark of 2.5 million consents for sharing data via Open Finance – which are forms of authorisation from customers to access information about their financial transactions in other institutions.
According to a company statement, 80% of credit origination for new sellers on Mercado Pago is already the result of analysing data shared via Open Finance.
This demonstrates Mercado Pago's effective utilisation of data to make real benefits tangible (increased credit origination) and communicating the importance of consent and its renewal to the customer – especially by acting proactively at this stage.
Another promising move that shows what would be the next stage of adoption derives from Apple's acquisition of Credit Kudos, signalling what could be a good starting point for the expansion of Open Finance in some countries, especially those in which a regulated framework (mandated, interoperable, and mature) exists. The bigtech recently added Open Banking-powered capabilities to the iPhone wallet in the UK, making it possible for users in the country to aggregate their current account balances and transaction histories in the wallet dashboard.
After the UK being the first market for Apple’s solution, we can presume that Brazil, Australia, and a few others might join next.
In Latin America, the expansion of Open Finance is growing steadily, especially in Brazil, where the implementation is advancing through its last phase. Countries such as Chile and Colombia are making meaningful progress in the development of their regulated frameworks, adjusting and shaping it to their context in a way that could effectively transform the local financial systems. Despite starting the regulatory process first (even before Brazil), Mexico is lagging in its implementation, specifically due to regulatory uncertainty, with CNBV (the local regulator) reportedly facing legal action over delays in publishing Open Finance rules.
Many Latin American countries are focusing on improving financial services by prioritising financial inclusivity, product customisation, and user-friendly interfaces, which Open Finance readily facilitates. However, the pace of the transition to a regulated scenario in most of the region is slow, and its completion would take a while. Collaboration between regulatory bodies, financial institutions, and fintech companies is paramount to overcoming these hurdles.
In conclusion, the global advancement of Open Finance is inevitable, with countries harnessing its power to gain efficiency and improve the overall financial experience.
The shift from merely focusing on operational improvements to the clients (like higher credit limits and lower fees) to a more holistic approach highlights the industry’s commitment to ensuring consumer-centric, efficient, and satisfying financial services is imminent in some regulated jurisdictions. The provision of contextual and customised services can improve customer satisfaction, loyalty, and retention rates – being a game changer for different institutions that seek principality in the relationship with their clients.
Latin America, despite facing challenges, is steadfast in its pursuit of leveraging Open Finance to revolutionise its financial landscape, promising a brighter and more inclusive financial future for the region.
In Brazil, the regulator is going beyond, planning to integrate the different capabilities recently developed (like Pix and Drex, the local CBDC) with Open Finance, promoting a real leap in the way we will experience our financial life. With this broad integration, the Central Bank of Brazil will deliver all the pieces that will enable the development of its most ambitious vision – a kind of financial ‘super app’, built on top of a complete digital wallet, which will bring everything together in one place. Financial institutions will have the opportunity to create their own definitive financial experience, even adding some non-financial experiences as well.
The path forward is very promising, but the journey is still halfway done and requires a lot of attention, prioritisation, and encouragement.
This editorial piece was first published in the Open Finance Report 2023. We encourage you to download the report and find out the latest trends and developments in the world of Open Banking and Open Finance, as the road to Open Data continues.
Bruno Diniz is a Managing Partner at Spiralem and Professor at the University of Sao Paulo (USP). Regarded as one of the top fintech influencers in LATAM, Mr. Diniz is also a speaker and author of the bestselling books ‘The Fintech Phenomenon’, ‘The New Financial Logic’, and ‘The Age of Crypto Economy’.
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