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Brazil Is Benefiting From Open Finance. Should Mexico be next?

By Pablo Viguera - Belvo
Co-Founder and Co-CEO


By Pablo Viguera | CEO & Co-founder - Wed, 05/03/2023 - 16:00

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Open banking is a powerful innovation that has contributed enormously to accelerating the transformation of the financial sector, allowing new products and services to be built in a short time on the infrastructure of this model. A clear example of the potential of this model is what is happening in Brazil, where it was recently announced that the Bank of Brazil increased the credit limits for individuals by more than R$700 million (US$202,177) through the use of data extracted through open finance.

In addition, the wave of Latin American countries that are already joining plans to regulate and implement this model is growing, starting with Colombia and Chile, which announced their proposals this year in terms of regulatory and commercial issues.

Thereby, open banking and open finance solutions have the potential to become catalysts for growth and, redundantly, innovation for other productive sectors, such as banks and financial institutions, especially in regions like Latin America, where there are high rates of unbanked people, high rates of bank fraud and where cash is still the king of all transactions.

Within this panorama, credit continues to be one of the factors with the greatest impact in terms of financial inclusion in Mexico. According to last year's National Financial Inclusion Survey (ENIF), only 32.7% of adults had a formal offer of credit. And although there has been an increase, almost 6% according to the CNBV report, the numbers are still marginal when compared to other Latin American countries, such as Brazil or Chile.

Using Open Finance as a Credit Enabler

In this scenario, without having access to people's financial data, their consumption habits and what they pay or stop paying each month, to give a few examples, banks and finance firms may continue offering  inadequate or conservative credit solutions for fear of default. Or they may even choose not to provide them at all, due to a lack of complete information on the financial situation of customers. 

However, with open finance information, it is possible to add new factors to traditional credit risk analysis models, even reducing companies’ dependence on the scores of specialized agencies. By accessing bank, tax, employment and social security data, and having the ability to enrich this information, credit providers would have a much more global perspective of the user's financial life.

This can help the financial sector reach more people who may not have a traditional credit history, but who have a history of responsibly managing their finances. Better credit offers help even to indebted consumers, enabling them to renegotiate and pay off their debts faster. It also allows a second chance to be given to applications rejected for lack of data, which can now receive an offer thanks to the visibility of other financial data that was previously inaccessible.

In addition, the ease of information entry and faster access to customer data can significantly increase conversion in the credit funnel. According to data collected by Belvo, companies can achieve up to 15% of new approvals after verifying data shared through open finance for applications that had previously been rejected in the traditional way, or up to 30% credit line increases for existing customers after sharing new information through open finance.  

Agile Innovation With Open Finance

In addition, open finance offers the possibility of creating and launching products and services tailored to customers' needs. With access to enriched and organized user data, companies can create solutions based on a person's spending and consumption patterns, their actual income, as well as their ability to pay.

With this information, financial companies would now have the ability to innovate and launch products, such as microcredits, in a shorter period of time, efficient and optimized personal finance management applications, and mortgage loans with better interest rates, among many others.

One of these innovations in the credit sector is "buy now-pay later," which in an economy as complicated as Mexico's, plays a key role in closing inequality gaps in the global economy and allowing both consumers and sellers to benefit.

Buy now, pay later is a win-win for everyone involved: buyers have access to payment flexibility, getting goods and services that would otherwise be more difficult to acquire.

In addition, the payment in installments allows them to plan their expenses and project part of their income to pay off their new debt, but having cash so as not to neglect the rest of their regular expenses. On the other hand, sellers open a window to increase their cash flow, as more people can access their products with this soft payment method.

Companies like Aplazo are already using open finance to provide this service, as well as to increase the credit lines of existing customers. By having updated data in real time, the offers provided by this Mexican fintech are made much faster and to a greater number of people.

Another benefit of open finance solutions is the possibility of automating the credit granting process, which would help banks and credit providers save time and reduce operating costs, while also identifying cross-selling opportunities and improving the user experience.

The Mexican financial sector has the opportunity to take advantage of open finance platforms to consolidate its presence in this new financial era. Mexico already has the ideal scenario to be able to use open finance as a financial inclusion tool: it already has regulation that enables the model, there is a sufficient amount of financial data sources, as well as an increasing penetration of digital financial services. 

By enabling secure and efficient access to financial data by different service providers, companies like Belvo are promoting a more competitive and accessible financial ecosystem for all.

Photo by:   Pablo Viguera

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