Pablo Viguera
CEO and Co-Founder
Belvo
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Startup Contributor

What to Expect From the Latam Open Banking Ecosystem in 2022

By Pablo Viguera | Thu, 01/20/2022 - 09:00

Like most successful technological advances in the past, the underlying systems that enable them are often unnoticed by users. And, as today most people probably don’t know that they are using the XMPP protocol when they send a WhatsApp message, they likely won’t know that underneath their everyday financial apps is open banking.

While the foundations of the open banking movement were originally built in the UK and Europe, these models have expanded across the world, bringing more accessible, modern, and inclusive financial services to millions of people.

In Latin America, the perfect stage is being set for the adoption of open banking and open finance thanks to a combination of several structural changes: digitalization spreading across all sectors of the economy, infrastructure providers building new common rails to interchange data and money, fintech services gaining traction and funding, and the development of new regulation frameworks.

Looking at the year ahead, these are some of the trends that will gain traction as this ecosystem becomes stronger.

  1. First examples of regulated open banking will arrive in Latin America

This year, Brazil is entering a fully regulated open banking model. Phase 4 began in December 2021 and is expected to run through 2022. The latest stage is marked by the beginning of “open finance” and will allow the exchange of data from investments, pensions, and foreign exchange services.

With this new regulatory framework going live, this year, we’ll see financial institutions starting to open their data through APIs to allow third parties, such as fintech companies, to build richer consumer experiences. This will lead to new services and products flourishing in a fintech ecosystem that’s already ripe with opportunities.

In this context, Brazil will likely continue to be a shining star in Latin America. The instant payment platform PIX has already been used at least once by 110 million Brazilians since its rollout began in November 2020. The platform flourished in 2021 and surpassed 40 million transactions in a single day in July 2021. This widespread adoption will help bring more Brazilians into the financial system.

In other Latin American countries progress continues, just not at quite the same break-neck speed we see in Brazil. Be on the lookout for further announcements and updates to regulations from countries like Mexico and Colombia as the world starts to regain some semblance of normalcy following the pandemic.

  1. Open banking will generate more credit offerings

Big changes aren’t just happening in Latin America. Open banking is set to have a significant impact worldwide in 2022. The UK released an update on open banking, laying out the next steps for implementation and encouraging widespread adoption. Research from PwC and the Open Data Institute predicts that 64 percent of adults will adopt open banking by the end of 2022.

UK credit providers are also a driving force in open banking and 55 percent are expected to implement it in the next year.

Looking at Latin America, open banking has the potential to drastically change the lending industry and boost alternative lending practices and providers. We believe in 2022 this could help small businesses but also larger institutions start providing new credit solutions by including alternative data sources into their current risk models.

  1.  Companies will embrace open banking models

Together with new regulatory progress, the ecosystem of open banking API providers is taking steps toward adopting increasingly homogeneous and stringent measures and security standards that offer consumers and companies the same level of assurance as to the traditional financial industry.

This will lead to more adoption from a broader spectrum of companies across Latin America in 2022, including banks, other large financial institutions, like credit card providers, as well as enterprises, such as retailers and e-commerce platforms. 

And what benefits await those entering this space? According to Deloitte: “Open banking offers a ‘plug and play’ model wherein financial institutions can offer a full range of services at lower operating costs, thereby increasing profits. Financial institutions can also increase penetration of products and services through effective data utilization.”

This will definitely be a year of growth and consolidation for open banking and open finance in Latin America.

Photo by:   Pablo Viguera