Em Conversa looks to uncover the secrets in Latin America (LatAm) that have caused the fintech market to boom, from being worth less than $50million in 2016, to $2.1billion in 2022. Our first guest is Victoria Amato, CBO of Quanto, the open banking platform, who discusses the first year of open banking in Brazil.
The world has been shot into overdrive when it comes to digital innovation, and this is especially the case in the financial sector. All over the world, countries are working on Central Bank Digital Currencies (CBDCs), new forms of payment, developing AI to help a variety of sectors like insurance, and more. One of the most revolutionising forms of technology is open banking: the use of open APIs that enables third-party developers to build applications and services around the financial institution, creating a more seamless experience for end-users.
Quanto is a Brazilian company looking to accelerate open banking’s uptake in the region by providing companies with data, believing its adoption will have positive ripple effects on the whole financial ecosystem in the country. Victoria Amato is the chief business officer at Quanto, and oversees marketing, strategy, HR and more, making her well placed to understand Brazil’s open banking development when compared to the rest of the world.
We sat down with Amato to find out why open banking adoption could help Brazil and LatAm, and how it differed from previous iterations of open banking:
How has open banking’s rollout in Brazil differed from the rest of the world’s?
First I think you need to take a step back to understand the market: we have a very concentrated market, with five major incumbent banks taking 80 to 85 per cent of the Brazilian banking market; we have NuBank as a close sixth that has reaped a lot of the benefits of a concentrated market.
I think one of the biggest differences between the rollout in Brazil and other countries is that Brazil was a latecomer, in the best possible sense, allowing us to learn a lot through the rollout in other regions. The Central Bank of Brazil took lessons from around the world when building their regulations: a few fixes, if you will, that address issues faced in other places. In the UK for example, user experiences were something that posed a challenge at the beginning. The Brazilian Central Bank has already incorporated some rules and guidelines into the regulation so that companies are mindful of the user’s experiences and open banking journey.
Additionally, the Brazilian open banking scene has developed into open finance. It spans a wider scope than it does in other regions. In Brazil, you’ll go beyond statement balances and credit card information, and go towards investments, insurance and other areas within banking so that have the entire financial system considered within open banking as a result.
Have there been any region-specific reasons for the variation in this rollout?
I think we’ve learnt a lot of lessons from other regions, and that’s helped massively with the rollout. The way that open banking regulation is rolling out in Brazil is through phases. What we’re going through now is ‘auto-regulação’ which is essentially self-regulation: we have members of the open banking community, both in terms of the central bank and players that are going to be using open banking, discussing the details and ironing out the kinks of how the open banking regulations are going to go live.
What this will ideally do, is allow those who will actually be inside this network and having to expose data and collect data, be the ones to address the problems they have seen come up in other regions.
In terms of the rollout’s phases, in 2021 we launched open banking, and a lot of people were getting ready to expose their APIs. We’ll likely see a gradual rollout in 2022, as we approach phase four, and see more use cases and data mature throughout the year.
What are the next steps for open banking in Brazil?
Officially on the regulation side, we have phase four launching in May 2022, whilst some subsections from phases one, two and three will also go live at the start of the year. On the business side of things, the next steps will be actually putting the data to use.
What’s going on now is banks are exposing their data and other institutions are collecting the data. What still has to happen is the data that is now free-flowing in the system needs to have actual benefits for end-users. So what we’ve been doing at Quanto is anticipating this movement. We already have clients live and we’re collecting data and starting to see these first impacts. So we’ve seen a credit client be able to increase their approval rating by 20 per cent and the assertiveness of their model by 35 to 40 per cent. So we’re starting to see these first cases, where using data in a smart and efficient way, benefits both the company and the end-user. That’s the next step we’re going to see in 2022.
Have there been any major kinks in Brazilian open finance that the next region to implement the tech will be able to learn from?
I think its hard to answer that right now because we still have to see open banking go live. We’re still at a stage where we don’t see the user’s flows live as all the institutions are still working on exposing their information. But I think one of the lessons learned, and I’m not going to say this is something that didn’t work necessarily as I think this was something the central bank had to do, was surrounding scheduling. We had very tight scheduling and a lot of the delays that happened were probably because of the dates that were set at the first meeting. I don’t think this was a mistake because I think we needed an aggressive timeline to be able to make this shift happen. But I think one of the things that we can learn is how to decouple a few of the things that happened when you look at transmitting and receiving data, so that you can manage the time and allow the transmitters to get everything in order and do testing before you have whoever’s receiving the data actually after the information.
I think we can work on the spacing out of the phases so that we can give enough time for this huge transformation to happen, but I think that was something that we needed to get us in the mode of “this is a huge transformation. You have to have teams allocated to make sure this happens”.
What sort of challenges has open banking faced in Latin America and Brazil specifically?
The best way to show the challenges faced by open banking adoption is to compare it to that of PIX, one of the biggest payment methods in Brazil right now. PIX is a product, so when it went live, it was pretty straightforward. You start using different products and you see the benefits really quickly.
With open banking, we have an ecosystem change. So the benefits that come to the end-user will take a while to unfold.
The problem with the fear of sharing data and data breaches is usually a mismatch of information and understanding what is actually going on in this flow, and understanding why you’re sharing your data and the security behind it. We’ve been explaining to the end-user why they’re sharing data, what the benefits are of sharing data, and why this is a secure flow. So the way the UX is built is so that in the open banking regulation, you have to have screens that will tell you about data protection and our version of GDPR and make sure that the end-user knows what’s going on and what’s happening with their data. Essentially, we want to help the client understand what sort of incentives and benefits there will be with open banking, e.g sharing your data may get you credit or better banking fees, if they know you’re a good player and can see your data, that you wouldn’t have had before.
The most important thing for us is letting the end-user know they’re the one in control and I think we can do that through the user flows and context.
How will Brazil’s open banking rollout impact other countries in LatAm?
I think what is probably going to happen isn’t necessarily something contagious in the sense that once you have open banking in Brazil, it will be connected to open banking in other geographies because the banking systems are very restricted. You’ll have some overlap between the Brazilian banking system and other countries’ but for the most part, the major systems are different, in LatAm and the rest of the world. So I think it’ll be something that once we get the use cases out of the way, you’ll probably get other countries signing on; it will be an individual movement in each place with particularities because the banking systems are so different in each country.