Accept Open Banking Payments in Brazil
Open banking, the revolutionary financial model that facilitates the secure sharing of financial data, is gaining significant momentum worldwide. Latin America, renowned for its vibrant financial landscape, is also embracing this transformative trend.
Here we look at the regulatory framework of open banking in Latin America, adoption patterns, and the latest advancements within key countries.
Open banking regulation in Latin America
Latin America is currently experiencing a significant shift in its financial sector as open banking emerges. Various countries within the region are adopting different regulatory approaches at different stages.
- Brazil took the lead as its central bank, Banco Central do Brasil (BCB), introduced regulations in 2020 and implemented them in 2021, allowing the sharing of data and services among financial institutions, payment institutions and other institutions licensed by the BCB. Presently, the focus lies on open finance, a development stemming from open banking.
- Mexico introduced open banking within its Fintech Law, passed in 2018. It encouraged financial institutions and other relevant companies to establish standardised application programming interfaces (APIs) to enable connectivity and access by third parties.
- Chile introduced open banking through its Fintech Law, enacted in January 2023. It created an Open Banking System that allows the exchange of customer information between different financial or related service providers. The country went even further and introduced open finance framework, as the law requires obligatory data sharing by credit institutions, broker-dealers, asset managers and insurance companies.
- Argentina’s central bank is introducing initiatives that promote digital transactions and ensure compatibility across different platforms. For example, the latest virtual wallet regulation enacted in May 2022, or Transfers 3.0.
- Other countries are currently in the initial stages of open banking implementation. Peru, for example, is actively evaluating the market and laying the groundwork for open finance.
Open banking in Brazil
Brazil’s open banking regulation leads the way across Latin America. Since the Central Bank's regulations implemented in 2021, a wave of fintech and financial institutions has embraced this concept, propelling the market forward.
In 2019, the BCB (Brazilian Central Bank) launched a public consultation to discuss the regulations of Open Finance for licensed institutions. By May 2020, the bank outlined the initial scope of Open Finance, including data sharing guidelines and participant responsibilities implemented in 2021.
Despite notable progress, challenges remain. According to Febraran Bank Technology survey, roughly 80% of banks reported that only a small fraction, up to 10%, of their customer base has adopted open finance. Additionally, approximately 16% of Brazil's adult population remains unbanked; however, this number is gradually decreasing thanks to technological solutions such as digital accounts and the PIX payment system.
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Open banking in Mexico
In Mexico, taking inspiration from Brazil, significant progress is being made in open banking. The Bank of Mexico took the lead with its Fintech Law regulations in 2020, initiating the groundwork for this transformation. Although implementation has been gradual thus far, 2023 will be a crucial year focused on establishing a comprehensive financial ecosystem that seamlessly integrates all components of open banking.
To improve process efficiency, Mexico is working on refining the technical aspects of these regulations. Looking ahead, their vision encompasses an ecosystem where banks and other financial institutions can rapidly integrate into the expansive universe of open finance. Strategic alliances are seen as instrumental in facilitating collaborative product development while also accessing previously untapped market segments.
Open Banking in Argentina
Although there is no specific regulation for open banking in Argentine yet, the country’s central is introducing initiatives that promote digital transactions and ensure compatibility across different platforms.
This latest regulation for virtual wallets adopted in May 2022 mandated that financial institutions, fintech, payment service entities, and digital wallet providers offer users the ability to link to other accounts. This requirement guarantees that users can easily make payments and transfers using a single digital wallet, regardless of where their funds are held. In addition, payment service entities require access to account data from banks in order to facilitate this functionality.
This new directive is a step forward for Argentina's progress in achieving open banking and interoperability. It builds upon previous initiatives like the Transfers 3.0, showcasing the country's dedication to expanding financial accessibility.
Introduced in November 2021, Transfers 3.0 is a cutting-edge digital transaction system that uses QR codes to enable instant payments. It empowers users to conveniently conduct transactions from any banking or payment account, with the goal of bridging the gap between various service providers through a unified payment framework and promoting digital transactions.
Data from the central bank revealed that Transfers 3.0 experienced robust adoption. It recorded over 2 million transactions, with a total value of approximately ARS 3.5 billion (equivalent to US$28 million), as of January 2022.
Open Banking in Chile
Chile's fintech landscape is currently going through a transformative phase as it implemented its new fintech law in February 2023. This recently enacted legislation serves as the framework for open finance in the country. Not only does it offer legal certainty to technology-driven financial service providers, but it also expands the range of regulated fintech entities.
Chile's fintech ecosystem has experienced remarkable growth over the years. According to a study by the Inter-American Development Bank, in 2017, there were only 65 companies, but by 2021, this number had risen to an impressive 179. The implementation of the new fintech law is expected to fuel further expansion, with projections indicating that the number could double in the near future.
Open Banking in Peru
In contrast to the disruptive approach often associated with new technologies, banks in Peru lean towards conservatism and wait for regulatory signals before embracing innovations.
The Peruvian banking regulator and the leader of the FinTech Group, SBS, is currently actively studying the open banking model. Recent announcements indicate a preference for an open finance approach that includes the broader financial market. This phased approach initially focuses on banking entities and addresses key challenges such as cybersecurity, interconnectivity, and data privacy.
A recent legislative proposal highlights the national interest in promoting open banking, aiming to enhancing financial inclusion in the post-pandemic era. Legislative Decree No 1531, introduced in 2022, amended Peru’s banking law to allow companies authorised by the SBS to carry out digitally all the operations for which they are authorised. Although there are challenges ahead in terms of regulations and technology, the undeniable potential benefits of open banking for Peru's financial ecosystem make this journey worthwhile.
Conclusion
Open banking in Latin America is not just a passing trend; it holds the power to revolutionise the entire financial landscape. The regulatory approaches vary across nations, each reflecting its unique economic and cultural contexts. Brazil and Mexico are at the forefront, implementing comprehensive regulatory frameworks. Meanwhile, Argentina, Chile, and Peru are also making significant progress by fostering an environment that encourages fintech innovation and growth.
Despite all the benefits of open banking for Latin America, there are challenges along the journey. Overcoming hurdles like data security, customer privacy and establishing robust API infrastructures will stay crucial. Additionally, addressing the pressing concern of financial inclusion while open banking offers a promising solution.
Despite the numerous challenges it poses, open banking brings about immense potential benefits. This innovative approach not only fosters competition and promotes innovation within the financial industry but also greatly enhances customer experience and facilitates greater financial inclusion. By embracing open banking, the promise of a more inclusive and efficient financial ecosystem becomes attainable.
Looking ahead, the future of open banking in Latin America holds immense potential for businesses, financial institutions, and consumers. The ongoing evolution of this concept promises exciting opportunities in abundance for all involved.