As of April 2023, there were 1,000 active fintechs in Latin America (LatAm) with a vast majority focusing on financial inclusion, tackling the issue of 70 per cent of the population not having access to formal financial services. Em conversa looks to uncover what the future of fintech could look like in the region, following a $2.1billion valuation in 2022.
At PAY360, we got the chance to chat with Huw Davies, co-founder and chief executive officer at Ozone API, the open banking API enabler, to understand how LatAm is responding to the emergence of open banking and open finance and its use cases.
What are some open banking trends we’re seeing in LatAm?
First of all, the economy is getting really hot. It has been interesting to see the rapid shift from open banking to open finance and insurance and other sectors. But combining open banking with the implementation of PIX is really transforming the payments landscape in a way that we’ve not seen yet in the UK and Europe.
Brazil has been leading the way but now we’re seeing quite a few markets work out what their journey looks like. It’s getting interesting in markets like Colombia and Chile; Mexico is still moving towards the implementation but its taking a while. A lot of the smaller markets as well are now recognising that open banking done well is an opportunity to really drive investment into a market, in turn, creating jobs and tackling financial inclusion.
There are quite a few markets where it’s starting to happen ahead of any form of regulation. So whilst Brazil was very heavily regulated, I suspect we’ll see much more of a combination of market forces and regulation in some of the other markets.
Is OzoneAPI looking at a specific country within LatAm or looking at the region as a whole?
We are looking at the region in general. We have clients in a number of markets already across Latin America. We’re helping banks in markets like Colombia and Brazil, and we’re in discussions with banks and regulators in most of the markets.
Ozone API does two things. We help banks and financial institutions implement open banking API’s as our platform handles all of the hard parts of open banking. Additionally, we support all of the different standards around the world. The things they find hard to build are the things we handle. But we also work with central banks, regulators and market makers to help define the right approach for a market and technology at a national level.
As a result, we’re seeing a huge amount of activity and a lot of it isn’t in the public domain. Nonetheless, there’s huge momentum and the market is starting to move.
How does Brazil compare to the rest of LatAm, and in turn, the rest of the world in terms of open banking?
There are some clear similarities and interesting differences between the UK and Brazil. In the Brazilian open banking ecosystem, there is a need for players to come in and help connect the ecosystem.
We’ve seen lots of aggregators in the UK and Europe, and there are some great players in Latin America helping connect fintechs to banks. We see a lot of similar use cases like: personal financial management, SME financial management, and how access can help with better lending decisions.
However, I think there are interesting opportunities to double down on areas like financial inclusion or in the region. There are so many parts of society that are excluded from the traditional banking market. Therefore, there’s a lot of focus on how you can increase access to credit for the unbanked or micro SMEs. Another example would be improving the payment flows as you’ve got people moving to one country to send money back to family.
There are a number of different sorts of use cases but a similar kind of vibrant feel to the ecosystem that we’re also seeing quite a lot of VC dollars going into the region now. As a result, there are a lot more funds that are starting to focus on the region in general, which I think is a great indication of how much opportunity there is.
What are some of the biggest challenges open banking faces in the region?
There were a number of different challenges. Of course, there are some technical challenges – that’s why we’ve set ourselves up so you can make it much easier for any of the banks and financial institutions to get there much more quickly than before.
But the biggest challenges we see markets grappling with are often the best ways to kickstart the ecosystem. How much should a market embrace regulation or some form of policy push or mandate? How much should it embrace market forces to really create a much more market-driven ecosystem?
Across several markets in Latin America, we’re seeing regulators take quite a balanced view and say, ‘we want this to happen, but we need it to be a commercial marketplace’. So it’s sustainable, but getting that balance right is one of the biggest challenges I think.
I do think it will look a little different for each market in Latin America. But then there are, as I said, technical challenges. These are fundamentally a massive upgrade to infrastructure. Then you see adoption and use cases build out over time.
I think we’re seeing there’s a lot of learning being taken from other markets in the world, which I think means it’ll happen quicker, and it’ll happen better – we’re seeing that with Brazil.
What is Ozone API’s plans for the future within Latin America specifically?
Firstly, our objective is to be wherever open banking development is happening at scale around the world. This means we are a very globally focused company; we’re working with banks, financial institutions, and regulators across pretty much every continent. Latin America is a really interesting market. There are a lot of countries, and a huge amount of diversity. However, all these countries are at different stages of open banking.
Our objective is to help the markets get there faster, and with a much better technical quality, because the ecosystem is only as strong as the foundations that the banks put in place.
Our role is to help banks implement open banking really well. When banks do it well, it drives a much more vibrant ecosystem.
I genuinely believe open API’s will become a dominant, if not the dominant, channel, for how banks engage with customers in the long term. They’ll become less dependent on their branches and their mobile apps. So our role is to help ease and accelerate the delivery of open finance, right across the region, wherever it’s happening.
