As one of the hottest topics in finance, Open Banking is a driver for innovation in the financial industry worldwide. Although discussions on the subject recently started in Brazil, the Financial Technology market is very excited about its potential outcomes.
Fintechs are companies responsible for bringing financial organisations to the Digital Age. Historically, consumers in Brazil are accustomed to the lack of investment in innovation by banks and other financial institutions. The massification of internet access led to services migrating online. But that was still far behind actual digitalisation.
Today, this South American country is exponentially improving access to financial services through its more than 370 fintech startups (according to the latest Fintech Radar by Finnovista). On the other hand, it requires the disruption of local bureaucracy and old legacy systems.
The Brazilian Central Bank (BCB) is playing its role in stimulating modernisation through revised regulations. In 2019, the institution issued a statement foreseeing implementation of legislation about Open Banking in 2020. Naturally, due to the current pandemic, this date could be delayed, although the BCB itself says they believe it is possible to maintain this schedule.
Open banking as defined by the BCB is “the sharing of data, products and services by financial institutions and other licensed institutions, at the customers’ discretion as far as their data is concerned, through the opening and integration of platforms and infrastructures of information systems, in a safe, agile and convenient manner”.
The specific Laws are still to be created and enacted. The government is pushing towards improving the efficiency of Brazil’s banking system. Europe and the UK are the benchmarks.
Potential for Open Banking in Brazil
A large percentage of the Brazilian population is unbanked (30%) and removed from using services such as online payments, insurance, credit etc. Open banking has the potential to help reduce credit cost, improve efficiency, and build reliable digital services for them.
The implementation strategy outlined by the Bank will comprise four phases:
1 – Sharing of information on products and services from/by Banks.
2 – Sharing of personal and transactional information from end-customer (at their discretion) with interested parties.
3 -The implementation of services within the open banking structure, such as payment services.
4 – Amplifying the access to data from other specific sectors such as investments, credit, insurance etc with interested parties.
Brazil is a mature country shifting towards open banking and massive diffusion of smartphone usage with fast mobile internet. The adoption of this model will quickly pick up. The market is excited, and the BCB is very pro-business at the moment, pushing its Agenda to foster innovation and competition. The result is going to be opportunities for new and smaller players focused on the end-consumer. Most parties involved are looking forward to the changes that will promote inclusion, competition, transparency, and financial education.
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