Open Banking is a new concept of financial system. The starting point is the customer. As owners, they manage their own data - which was previously stored within banks. These users determine which data they want to share and with whom. With several models being implemented and operationalised around the world, unlike a means of payment, which transforms user experience, the model has the potential to transform society.
Concept
Open Banking is a new concept of a financial system that allows bank customers to share their registration and transaction information with different institutions regulated as well as allowing movement of bank accounts from different platforms, and no longer only through the financial institution application or website.
Customers are the starting point of Open Banking. As owners, they can manage their own data - which today is stored inside banks. These users will be able to determine what data they want to share and to whom.
Differences between the Brazilian model and the world
In Brazil, the legislation on Open Banking was published in May 2020, determining 13 banks, to be in production by the end of 2021. However, this deadline has been changed a few times and the expectation is that all Open Banking will be in effect only in 2024. According to the Brazilian Central Bank, the goal of the new system is to increase efficiency, decrease the cost of providing financial services, and increase competition.
In the European Community, the parliament published in 2015 a directive known as PSD2, which applies to all payment account providers. However, unlike Brazil, PSD2 did not require the creation of common integration standards. So, banks made their data available with different technical standards, creating an additional layer of complexity for the account aggregation tools, for example. But as with Brazilian implementation, PSD2 only opens access to customer data to regulated institutions.
In the UK, meanwhile, Open Banking has its roots in an investigation conducted by the Monetary Competition Authority into competition in the banking market. The conclusion was that the best way to stimulate the financial market was to open up banking data to a wide range of service providers. Subject to various requirements and certifications, and through "permission list" processes, unregulated institutions can also be part of the ecosystem.
There are other initiatives. It is worth mentioning the Australian experience, launched in 2019 as a result of a project linked to Consumer Data Protection, conducted with the participation of the Competition Authority. In this case, the obligation of openness falls on the 4 largest Australian banks, which must grant access to debit and credit card, current account, home loan, and personal loan transactions.
There are still those who are voluntarily adopting the system. This is the case in Nigeria, where, in 2017, a group of bankers and fintech came together to adopt common rules for open data. In Singapore, the adoption is also voluntary, but the National Monetary Authority is leading the process.
Finally, we can see that the biggest difference between the Brazilian model and the international model is that the format being implemented in Brazil is more comprehensive than in some countries, as it encompasses not only essentially banking products, but also foreign exchange, private pension, investment, and insurance operations. It is the so-called Open Finance in action.
Who is eligible to benefit
This is where the true potential of open banking lies, as proper access to a person's data allows third parties to create more powerful, personalised, and customised applications and products for various social niches and segments.
For an individual who has several bank accounts, Open Banking will allow them to check all their transactions in a single interface through account aggregator applications, which can even move funds between one account and another if the balance is negative in a particular institution. This same application, with built-in artificial intelligence, can help the individual to better organize his finances by suggesting financial products with better rates or even help him to save money.
As far as micro, small, and medium-sized entrepreneurs are concerned, Open Banking will allow them to better control their cash flow, reconcile payments, manage inventories, and integrate all said information with their accounting service provider, who will have at his/her disposal all the company's transactional information. It means no longer needing to export different files from different banks to be consolidated in a single view. With more precise information, it will be easier for the entrepreneur to get credit at lower rates.
In Brazil, Open Banking has the power to include close to 45 million "underfinanced" Brazilians - people who today do not have access to credit because they do not have sufficient financial history to provide basic data for better risk analysis, without which they cannot obtain financing to buy, for example, a property, a car, or home appliances.
Conclusion
Before Open Banking, banks worked in a vertical model of production and sales. That is, the bank created its products, distributed, and sold them through its own channels (branches, ATMs, internet and mobile banking, and correspondent banking). But with Open Banking, the distribution model will change completely. Financial products will be able to be distributed within an ecosystem of suppliers, using interfaces and brands distinct from the producer.
Thus, the traditional business model will be transformed into a platform-based, data-intensive marketplace, where multiple financial service providers will continuously compete to offer customised products at the best rates to customers. The battle will be on interface and user experience.
Unlike a means of payment, which transforms the user experience at check-out, Open Banking has the potential to transform society.
Tiago Aguiar is Superintendent of New Platforms (Digital Innovation) at TecBan, Head and Strategist in Open Banking Lead. He is a Lawyer, Master of Law by PUC-SP (Brazil) and specialised in International Business by New York University.
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