As the Central Bank of Brazil moves forward with open banking, discussions about the positive impacts of the new model become more frequent among industry experts, market players, and the population itself.
One of the main questions is whether or not customers will be willing to share their information with multiple institutions, and if this would imply a privacy violation of some sort. It is important to state that the sharing of data is only possible at the customer’s discretion, leaving the customer to decide if they will or will not benefit from open banking. And what benefits can we expect?
The convenience to apply for better credit is possibly one of the most relevant benefits. Since users will be able to easily share their banking history and information, financial institutions can offer a credit proposal that best fits their needs, with possibly lower interest rates.
Of course, credit is only one of the many examples. Customers will be able to easily access a number of financial products that are customizable for their needs. After all, it is important to remind ourselves that many consumers in Brazil are denied access to some financial products and services because of minimal information provided, such as transaction history. Once this information is open to all institutions, it is likely that, once open banking is fully operational, consumers will be provided with proposals that fit them, such as better insurance, financing, and investments.
In addition, open banking, allied to the surge of digital banks with zero maintenance and transaction fees, can encourage banking adoption longer term. The system will also encourage competition between financial players, promoting innovation. At the end of the day, the customer is the one who will benefit the most.
The state of open banking in Brazil
The Central Bank of Brazil announced in early May the open banking regulations. The approved normative act encompasses the definitions, objectives, and principles of open banking in Brazil, in addition to the main guidelines and operating rules. In regard to self-regulation, participating entities will themselves agree on technology standards, operational procedures, safety standards and certificates and the implementation of interfaces, all in accordance with the regulations in place.
Implementation should take effect in November 2020 and be fully operational by October 2021. The timetable has been maintained, despite speculation that the coronavirus pandemic might delay the agenda.
The implementation will occur in four phases:
Phase I: Access to information from the participating institutions regarding customer service channels, in addition to products and services related to deposit or savings accounts, payment accounts or credit operations. This phase should be implemented by November 2020.
Phase II: Sharing of customers’ registry information and transactional data related to the products and services listed in Phase I, to be implemented by May 2021.
Phase III: Sharing of payment transaction initiation services and forwarding loan proposals, to be implemented by August 2021.
Phase IV: Expansion of the scope of data covered, including foreign exchange operations, investments, insurance, and more. This phase should be implemented by October 2021, making open banking fully operational in Brazil.
All institutions within Segments 1 (S1) and Segments 2 (S2) – which includes the major banks in Brazil – will be forced to adopt open banking. However, all authorized institutions can adopt, as long as they comply with reciprocity and share information as well.
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