State of open banking regulation in Latin America

The relevance of open banking is growing in Latin America, with several countries moving forward in 2021 with regulatory initiatives that seeked to promote competition and data sharing in the financial industry. 

A handful of countries in the region have established open banking frameworks as of 2022 or have begun discussions on adopting one. Countries like Brazil and Mexico have official regulations in place, whereas Colombia, Chile, and Argentina are either on early-stage discussions or have already submitted regulatory proposals. 

Open banking is defined as the sharing of data, products, and services between registered companies — banks, payment institutions, and other entities— at the customers’ will, as far as their data is concerned.

The largest market in the region, Brazil, is at the forefront of open banking regulation. Its implementation was initially delayed by the pandemic, but the country will work on a fully regulated open banking model later this year. 

Open banking essentially shifts ownership of customer data to the customer itself rather than the bank that owns the data. Open finance is a broader concept that encompasses sub-industries within the financial sector as well, such as investments or insurance. 

Final stages in Brazil

In Brazil, open finance is closing in on its final stages of enablement. Last December, Brazil’s Central Bank launched the fourth and last stage of implementation, which is expected to finalize by March. This stage allows for information related to investments, insurance, pensions and foreign exchange transactions to be widely shared at the user s consent. 

“With phase four, open banking begins to share a set of information beyond traditional banking products and services, which marks the beginning of its migration to Open Finance,” the central bank said in a release.

Participation in the data-sharing ecosystem is restricted to companiesthe Central bank has approved, and must provide APIs dedicated to data sharing. Its implementation begun almost a year ago, and is part of a series of measures adopted by Brazil’s Central Bank to modernize the financial market and reduce the cost of financial services. 

Julián Colombo, CEO at C5.

Before open banking, Brazil’s Central Bank launched PIX, a low-cost payment system which saw dramatic adoption last year and is now omnipresent in Brazil.

For experts, the role of the regulator has been critical in moving forward the innovation agenda. 

“With open banking, the central bank in Brazil is clearly looking to improve the financial system,” Julián Colombo, CEO at banking technology firm C5, said.

Market response will intensify

So far, its effects on the business sector have not been entirely felt. But it is likely that they will intensify in 2022 as the structure is finalized and fully operational.

“The focus of most institutions participating in open finance has been so far to adapt their systems to comply with regulations and build the structure to exchange information,” Paulo Oliveira Andreoli, an Open Finance director at Grupo FCamara Consulting, said.

“Starting this year, I believe institutions will start to take advantage of the framework and the ecosystem’s potential to use the information to offer more personalized products and services, better credit conditions and facilitate onboarding.”

Open banking begun in Europe but spread later to other regions. In a continent with expensive financial services, implementation of open banking in Latin America is seen as a doorway to increasing competition and reducing fees associated with them. 

Access to financial services has been growingng of digital channels, but usage of products even as standard as credit or debit remainsremain highly underdeveloped.

Other countries are following in the footsteps of Brazil.

Chile on deck

Last year, the current government in Chile proposed a fintech bill to Congress which has yet to be confirmed. Among those initiatives, it formally regulates open finance in the country. The government implemented as well the Financial Portability Law, a tool for individuals to shift their financial providers more conveniently. 

“The government has strong willingness to implement open banking,” Andreoli said. However, it is yet to be confirmed whether the new administration, which takes office next month, prioritizes the projectiority. 

Colombia has taken early steps in that direction, involving discussions on the subject and some early steps towards an open banking framework. Financial regulators suggested that a framework might be introduced later this year.

In Mexico, Latin America’s second-largest market, open banking has legal grounding but still seems far from becoming a reality in Mexicans’ financial lives.  

The country was a pioneer when it issued the first fintech law in Latin America in 2018. The regulator has since incorporated new rules, including some related to open banking but mainly focused on publicly available data like ATM location and product details from each financial institution. 

According to a report by open banking firm Belvo, a new set of rules is expected for thi, which should focus onon the shng of transactional data from consumers.

However, it is still unclear in terms of how fast it could be implemented, and what depth it will have in the system.

Finally, in the case of Argentina, the regulator has promoted some discussions but no clear regulation is in sight as of yet. Several of the fintech leaders in the country, including Uala’s CEO Pierpaolo Barbieri, have voiced for the need to embrace open banking in the country.

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