Voice of the Industry

The flourishing of regulated Open Data ecosystems in Latin America

Wednesday 28 February 2024 14:02 CET | Editor: Vlad Macovei | Voice of the industry

Walter Pereira, economist and founder of W Fintechs, explores LATAM's progress, challenges, and future prospects on its Open Finance journey.



Latin America has a fragmented Open Finance landscape. Many countries are making progress in the implementation of data-sharing infrastructure, but they do so at different speeds and with varying degrees of data scope, governance models, and technical standards. In the region, some countries are rapidly moving towards data openness with active involvement from financial regulators. Meanwhile, others are still evaluating the opportunities this infrastructure can offer to the market and the population. Additionally, there are countries where regulatory participation is minimal, resulting in an environment where the market itself develops API aggregation solutions and provides them to fintechs and banks without proper regulation.



Data openness, under a regulated framework, was first introduced in the region by Mexico in 2018 when the Fintech Law was approved. Article 76 of the Fintech Law allowed for the implementation of open and standardised APIs to enable interaction and the sharing of financial information between regulated banks and fintechs. However, the lack of an equitable governance model that encouraged cooperation among participants and active participation of fintechs, along with the absence of transparency through public portals on the progress of the ecosystem, had impacts on the implementation progress. Furthermore, a common challenge in the region, also seen in Mexico, is institutional instability. In other words, potential changes in government or regulatory bodies can create uncertainties about the advancement and continuity of long-term projects, such as Open Finance. This can discourage some participants from allocating resources, further impacting the ecosystem's development.

When we consider other countries in the region, such as Brazil, we can see a different scenario in terms of progress in the regulated implementation of Open Finance. The progress of Open Finance in Brazil was driven by the experience of cooperation between the regulator and the financial industry that the Central Bank of Brazil gained while implementing previous innovation projects. The payment system reform in 2002, which reduced systemic risks, and the approval of Law 12,865, which increased the regulator's authority, allowed the Central Bank of Brazil to lead various modernisation initiatives from 2016 onwards, including the launch of Pix in 2020, an instant payment system.

The ability to interact with different stakeholders and promote consensus has led to the implementation of a governance model that has allowed the Open Finance ecosystem to rapidly mature collaboratively. API call records in 2023 demonstrate significant growth, increasing from 550 million to 850 million between January and May. Moreover, the number of user consents has steadily increased, rising from 35.76 million on June 30 to 40.47 million on September 1 for data receivers and from 36.45 million on June 30 to 40.95 million on September 1 for data senders.

Colombia and Chile are also making progress in implementing regulated data-sharing ecosystems. Over the past two years, both countries have held meetings with regulators from countries such as Brazil, Mexico, and the United Kingdom, with the support of development banks. This knowledge exchange has provided insights into best practices and challenges, resulting in common elements in both governance models and technical standards.

Some countries in the region, such as Bolivia and Colombia, are also advancing in the implementation of instant payment systems, aiming for integration with Open Finance, following the successful example of Brazil with Pix. International experience has shown that having a modern and interoperable payment system eases the adoption of Open Finance frameworks by both institutions and the population. This is due to the technological and collaborative capacity gains in the financial industry, as well as the population's technological literacy, promoting the widespread adoption of ecosystems like Open Finance.

Throughout this year, I had the opportunity to visit some South American countries and engage in conversations with fintech entrepreneurs. One of the observations that stood out was the presence of challenges related to instability and institutional fragility in many of these countries. This implies that, in addition to instability caused by changes in governments affecting long-term projects, regulators often lack the necessary technical expertise to implement projects that require technological know-how, such as Open Data Ecosystems.

Countries that have achieved success in Open Finance implementation have found solutions to address these challenges through the establishment of strong governance. This encompasses a clear definition of regulatory policies and objectives, the creation of a framework that allows collaboration with the market, and the inclusion of private sector experts in the implementation of technical standards. Additionally, it involves determining how the governance structure will be funded to prevent budget cuts in public institutions, such as regulators, from affecting the progress of the implementation.

Latin America is moving in the right direction to reap the benefits of Open Finance, which will enable greater financial inclusion and foster innovation for the benefit of the population. Some countries, like Brazil, are already beginning to realise the advantages of open ecosystems, as exemplified by Nubank customers who saved approximately USD 900 million in interest through Open Finance. As countries continue to learn from each other and overcome challenges, the outlook for Open Finance in the region appears promising, offering significant opportunities for both the financial sector and society as a whole.

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.

About Walter Pereira

Walter Pereira is an economist, founder of W Fintechs, and a partner at Boyce Data. In 2023, he was recognised as one of the most influential figures in the Latin American fintech ecosystem and he is LinkedIn Top Voice Finance 2023.



About W Fintechs

W Fintechs is a consultancy specialising in financial innovation, serving governments, financial institutions, and fintechs in Latin America. W Fintechs also publishes a weekly newsletter with insights into fintech every Monday (wfintechs.substack.com).

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Keywords: Open Finance, regulation, report, Open Banking
Categories: Banking & Fintech
Companies: W Fintechs
Countries: Latin America
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