Open banking is sweeping the globe. As more and more countries begin to adopt it, they are able to learn from the mistakes of those countries that implemented it before them and make sure there is a smooth transition into the digital world of banking. Brazil is a great example of a country that has learnt from the mistakes Europe made and is now seeing open banking begin to thrive.
But what is the current state of Open Banking in Brazil? What opportunities will it bring, and what obstacles still need to be overcome? Tom Greenwood, CEO at Volt and Ex Adyen SVP André Faria, Volt’s advisor for the LatAm market, explore Brazil’s approach to Open Banking and its influence on a global scale:
It’s no secret that Open Banking in Brazil has begun.
The Banco Central do Brasil’s (BCB) phased approach is transforming data sharing between banks (phase one), addressing consumer privacy rights (phase two), and the ability to initiate transactions (phase three) across the country.
However, less widely acknowledged is that this approach will not only enable Brazil to emerge as a leader in the Open Banking movement, but as one of the most innovative financial ecosystems in the world.
This is because the BCB has gone one step further than its European counterparts in devising an Open Banking framework that simultaneously envisages and acts as the roadmap to Open Finance. The implementation of each stage is not an end in itself, but the beginning of a deep transformation of how financial services are conceived and delivered to consumers.
The fourth and final phase, which involves the application of steps one to three to other verticals within financial services – such as credit, insurance, and investments – has the power to open up entire financial footprints to trusted third party APIs, transforming the way consumers move, manage, and make more of their money.
Brazil’s roadmap to Open Finance will enable unseen levels of interoperability and innovation across the industry. We expect to see a multitude of additional services around authentication and automation grow in the region. For example, enabled by Open Banking infrastructure, payments will become real-time and inherently more secure, eliminating the dangers of card fraud. Integrations between banks and merchants will be simplified, supplying faster, safer, and smoother money flows. User experiences will be improved, conversion rates will rise, and so on.
Open Banking will also trigger greater cooperation between the Brazilian banking system and fintech startups, bringing more efficiency to product offerings and opportunities for developing new services tailored to customer needs. New business models leveraging data are expected to emerge, enabling better customer understanding and insights, attracting millions of new users to the country’s financial system. Simply put, the Open Banking opportunity for Brazilian fintechs is tremendous.
Of course, the actual deployment of such an ambitious new model is not easy. A comparison to Europe’s own Open Banking journey tells us that delays are often inevitable. Certainly, the BCB’s second and third phases have both experienced delays so far, with the latter recently moved from 30 August to 29 October 2021. Discussions around cost allocation to subsidise the tech infrastructure needed are still to be had, and the immediate impact of the second (and arguably most important) wave has not yet been felt in the weeks following its official launch in August.
This has made for a truly gradual process rather than the clean shift that official launch dates can lead us to believe. But the BCB has been moving incredibly fast and the industry landscape is primed for Open Banking to thrive. A concentration within the five big traditional banks supported by a group of well-funded digital players, such as Nubank, is creating a diverse but condensed environment in Brazil, in comparison to Europe’s complex network of payments and data infrastructure supporting, say, six thousand banks.
Perhaps most importantly, consumer demand for more accessible and flexible financial products in Brazil cannot be overstated. In a survey of Brazilians conducted by Quanto, 75% of respondents had an account at more than one bank, and 70% had an account with a fintech company, highlighting that consumers are going to multiple providers in an attempt to meet their personal finance needs. In order to make this opportunity a reality, Brazil’s banks must cultivate a deep understanding of Open Banking – including its origins in Europe with PSD2, any local regulations concerning cybersecurity and customer protections, and market competition.
The BCB’s model is, without a doubt, one we can expect other regulators around the world to follow. Its considered framework will result in an Open Banking infrastructure that is more advanced than that of Europe’s. As Open Banking in Brazil becomes a reality, we will see the country move more swiftly than its precursors and quickly take the global lead in the race towards Open Finance.
The Open Banking landscape is beginning to level up across the globe, which makes it an exciting time to be at the centre of the open payments revolution. Only time will tell the true impact of BCB’s Open Banking model, but you can bet that others won’t be far behind.