Open Banking Spreads Across Latin America

Latin America is the fertile ground in which open banking is germinating at great speed. The implementation of open banking by financial and non-financial companies throughout the Americas continent, but especially in the center and south, is a decision that reflects the desire to join innovative, practical and efficient models for users and companies.

But why does Latin America represent a more valuable opportunity than the rest of the world? Of course, we don't mean to say that other latitudes don’t have the potential to implement open banking but that Latin America is at an ideal moment for its implementation.

Although Europe is a pioneer in offering, through open banking, use cases for data and payment services, its regulations are becoming obsolete due to a lack of technical considerations. On the other hand, for this latitude, there is an open field for all kinds of adjustments and refinements. We are at the perfect moment.

In Latin America, there is a world of possibilities for innovation in how these solutions can be implemented: user profiling, financial services of all kinds and credit are just some examples, not to mention that low banking penetration is one of the most evident signs of the urgency of financial inclusion; therefore, the extension of open banking requires legislative attention that considers the whole picture.

The way to create and implement open banking solutions in Latin America is very particular because we must focus on the specific needs of the region. Therefore, the most important factor before its arrival in this part of the world is to take into account the technical issues, corresponding to use cases, so that open banking truly becomes a complement of value for companies and users and not an obstacle or an impossible tool to use. 

Colombia

In Colombia, the most recent decree, published in July 2022, represents a milestone for this process, as it is the only country in Spanish-speaking Latin America to talk about open finance and not only about open banking. Through the Ministry of Finance and Public Credit, modifications were made to Decree 2555 of 2010 with a view to completing the transition process in just one year.

The Decree states that open banking aims to increase competition and innovation in financial services and, therefore, requires the use of APIs (application programming interfaces) for companies to create services.

Chile

The case of Chile reflects similar interests that are a product of the political and social context of the moment. With the launching of the Framework Agreement for Data Capture, in which the banks of the Association of Banks and Financial Institutions of Chile A.G., Banco Estado, and the companies associated with the Association of Financial Innovation Companies of Chile A.G. participate, the importance of watching over the users becomes evident. In this way, responsibilities and mechanisms for capturing user data are proposed. 

In short, consent management is the key to this agreement in which users must grant permission for companies to access their personal data. This issue, already contemplated in the legislation of other countries, is so rich and complex that it is capable of providing confidence and security to gain followers. 

When there is no law regulating the implementation of open banking, the personal data protection law is used. With data, it is possible to obtain the raw material, that is, the intelligence of the information, but with payments it is possible to make use of that intelligence. Oftentimes, the payment element comes with a well-thought-out open banking law.

Mexico

In Mexico, open banking regulation is based on the Law to Regulate Financial Technology Institutions, or the Fintech Law, that came into force in March and June 2020.  The main problem with this law is that it lacked a full consultation of the fintech ecosystem, which skewed its scope.  

The main challenges of this legislation correspond to the information regarding users’ financial transactions and movements; therefore, we are still waiting for secondary laws to fill these gaps. As we know, this data is of vital importance, since with the consent of users it allows financial and non-financial institutions to develop better quality, profiled and accessible products and services.

Brazil

Brazil also emulated the UK model, and the success has come quite quickly. However, the technical side, once again, has not been considered, so use cases are again left out. 

What this shows us is that we should not force companies to join integrated finance models but show them where their opportunity lies; show them the use cases to account for what can be achieved once the APIs are in place, and in this way make open banking useful. 

The financial system is facing a different competitive dynamic, with digital needs that require prepared players. Therefore, a deep transformation process is required that does not disregard what is urgently needed in Latin America.

A Whole Continent With Open Banking

The case is equally interesting for all countries in the region, but Guatemala, Peru and Argentina are already becoming increasingly involved with these models. In Peru, for example, this year represented a moment of change with the legislative initiative of open banking through Bill No. 1584/2021-CR, which seeks to implement a public policy of open banking in the country.

No doubt, this is just the beginning of it all. Not because the open banking model is in a developmental stage, but because the possibilities that appear on the landscape are almost innumerable. The use cases show us that open banking has arrived to help people improve their finances for good.