Progress in open banking regulation will advance financial inclusion further in Latin America, as well as prompt fintechs and banks in the region to eventually forge alliances to cater to new client segments.
“The regulation will give a lot of credibility and security to both financial institutions and end-users to take advantage of data in their favor,” Nick Grassi, Co-CEO at Finerio Connect, a Mexican open banking infrastructure provider said.
“In Latin America,” he said, “there is not as much trust from citizens when providing personal data. But with the security measures from the strongest institutions in the country, this can be mitigated.”
The company launched in Mexico in 2016 as a personal finance management app. Later in 2020, it incorporated an all-in-one financial software product and now offers services based on Open Banking, data management, and personal finance.
This month, it announced a partnership with Visa and Ozone API to cater to banks and lending financial technology firms looking to implement open banking. “We are seeing increasing demand because the market recognizes the value of financial data, especially the fintechs and the most innovative banks in the region.”
The relevance of open banking is growing in Latin America, with several countries moving forward in 2021 with regulatory initiatives that seek to promote competition and data sharing in the industry.
A handful of countries in the region have established frameworks or have begun discussions on adopting open banking. Countries like Brazil and Mexico have official regulations, whereas Colombia, Chile, and Argentina are either in early-stage talks or submitted regulatory proposals.
Open banking is the sharing of financial data between trusted third parties — such as banks, payment institutions, or fintechs— at the customers’ request, as far as their data is concerned, with the overarching goal of creating novel financial products and services.
Digital financial services are increasing in a region where around half of the population doesn’t have a bank account, yet approximately 72% are internet users, and smartphone penetration is approximately 80%.
For Belvo, an Open Banking API provider, the perfect stage is set for open banking to take off in Latin America. Digitization trends, better digital infrastructure, fintechs in a greater state of maturity, and innovative regulation could all add up to an ecosystem ripe for expansion.
“Until recently, being able to offer many fintech services took too long and required a large investment of resources and technological development,” Pablo Viguera, co-founder at Belvo, said. “This has changed dramatically with the emergence of infrastructure providers such as open banking APIs, payment gateways, or service aggregators in the region acting as building blocks for new fintech products.”
Open banking, he said, will help fintech companies and traditional financial institutions unlock new client segments that were previously out of reach, in many cases leading to potential partnerships between incumbents and challengers.
“Alliances under open banking or open finance models allow banks to reach new market segments to which they previously had no access and integrate new services offered by fintechs into its product offering,” he said. “It can be a win-win for all parties.”
Long way to go
To be sure, there is still a long way to go. Few countries have laid a complete groundwork for open banking, and implementation is usually a years-long process. In Chile, Congress is discussing its version of a fintech law, which has open banking as a critical element, but its approval has been delayed with the change in government.
The Andean nation had laid out the foundation for open banking before it approved a Financial Portability law to help customers move freely between providers. Some banks have already agreed to connect with fintechs to share data and plan to build their APIs.
“It is definitely a country that clearly understands the value of open banking and how to implement it well,” Grassi said. “(But) every political change made without passing the regulations to the next phase has been an impediment. Every time new people enter [the government], it is like starting from scratch with education about the importance of open banking.”