Open Banking Is for the People

Whenever I am speaking at events with journalists or with potential clients, there is always the  perception that open banking is a model mainly focused on benefiting companies: on helping them to streamline their processes and to have access to useful and clean financial data to create products.

The reality is that this model from its roots seeks to benefit the end user, by empowering them with the portability of their financial data and the freedom to choose how to use it.  

But what does this really mean for users in Latin America? Primarily that open banking functions as a catalyst and enabler of financial inclusion. 

In this region, where access to financial services and products is still very low, interest rates are very high and bankarization does not exceed 50 percent of the adult population in some countries, open banking allows financial information to open the doors to obtain credit that was out of reach, to receive financial education through PFM platforms or to be able to buy a house in a simple way. 

But it is not only about entering the financial system, it is also about having access to all the innovative financial services that are emerging in the region. 

One of these innovations is “salary in advance,” a model that allows employees to withdraw their already worked salary at the time of their choice, without the need for prior authorizations or loans and for a marginal cost similar to that of a bank commission.

According to the World Bank, 69percent of Mexicans live without liquidity to face unforeseen events, a higher percentage than in any other country in the world. In addition, 70 percent live from paycheck to paycheck, which is encouraged by the lack of financial education in the country, the lack of support tools for the employee and the high rate of informality in the country.

Another of these innovations  is “Buy now, pay later” (BNPL), which is growing by leaps and bounds in countries such as Brazil, Mexico and Colombia. According to Americas Market Intelligence, in total payment volume, BNPL in Mexico could reach a 4 percent share by 2025.

This is greatly enhanced by the advent of open finance, which allows a much freer and more fluid flow of information.

Another product that is revolutionizing financial services in Latin America is PFM (personal finance management) applications. In a region where financial education is one of the main barriers for people, these solutions are making more and more users aware of their financial lives and the importance of financial health.

According to a study published by ITAM and Nacional Monte de Piedad, 67 percent of the population is in a critical situation due to lags in specific aspects of knowledge, behavior, planning and use of financial services.

Now that PFMs are using the data enrichment potential offered by open finance, Latin Americans can now manage their finances in a healthier and more efficient way as they now have a single overview in one place. 

I could go on talking about all the innovations in the region but I prefer to focus on the initial message of this text: the roots and mission of open banking are to empower people. 

A clear demonstration of the benefits that open finance brings to people is shown by reviewing the numbers of users of this model. In its annual report on open banking, Statista says that in Europe there are already around 12 million users. 

In Brazil, the Central Bank reported that in just four months they reached 1 million approvals for data sharing by users after open banking regulation was fully implemented in the country.

And this is not only in terms of user numbers; governments are increasingly finding more potential in these models. Currently, 108 countries already have open banking regulations and 60 are still in the process of implementing them.

Colombia and Chile were the last Latin American countries to ride the wave of open banking and open finance, as they promoted decrees focused on regulating these solutions and generating a clear and secure collaboration framework for all the actors involved.

The challenge for this message to permeate will undoubtedly be to become the main ally of innovators in Latin America. By working together with other players, the open banking solutions can get closer to solving some of the biggest challenges these new models face, such as the need to build common standards to allow greater interoperability and to effectively convey to end-users the benefits that these models can bring to their financial lives. 

After all, we should never lose sight of what this whole movement is really about: giving users more control over their financial data and expanding their access to financial services. The more we put our efforts toward building a user-centric, safe, and reliable ecosystem for them, the sooner we can make this a reality.