Open Banking is spreading in Latin America. And there is no end in sight.

Written in collaboration with Open Vector

Open Banking has been the contentious Fintech initiative in the UK, US, and mainland Europe. The initiative is the first major step to Open Finance, where the liberalisation of data can introduce new business models, competitors, and innovative financial services that will only benefit hundreds of millions of bank users.

Now, Latin America is catching up with the Open Banking revolution. Most importantly, Mexico, Brazil, and Colombia, the region’s three largest and most developed economies, are leading in the race. There are around 441 companies that offer financial services with the help of technology in Mexico. Brazil and Colombia are the Latin American economies that follow in second and third place with respectively around 380 and 200 financial institutions supported by financial technology.

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Mexico is leading the Fintech game in Latin America

Mexico is one of the leading countries in Fintech adoption amongst financial institutions and Fintech demand amongst consumers. In August 2018, Finnovista estimated that the country had over 300 FinTechs with a 40% annual industry growth rate. Only one third of Mexico’s 127 million citizens have access to financial services and products, including the ability to make payments and transfers or apply for loans and insurance.

In 2018, with the support of the British Embassy, funded by the UK Prosperity Fund, hired an external consultant, Open Vector, whose CEO Carlos Figueredo happens to be one of our Senior Lecturers at CFTE. In this first phase, the first open finance data standards and API architecture/security as well as regulation were established, in order to allow the introduction of new business models, innovations, and opportunities to benefit the economy.

In February 2020, the UK Prosperity Fund launched a competition to identify and support the best entrepreneurs in the FinTech sector, with around 40 projects expected to be submitted to the Mexican Government for funding.

On March 10, 2020, the Central Bank of Mexico (Banxico) published the first regulatory framework for standardised API infrastructure for the country’s banking sector. This is part of the larger draft-decree Law to Regulate Financial Technology Institutions published in September 2018.

The next step from there was to introduce a General Provision to oblige financial institutions in Mexico to share financial information through APIs, which the National Banking and Securities Commision of Mexico (CNBV) did on June 4, 2020. Regulators are expected to develop the standard step by step, so the financial services ecosystem can gradually adapt to the new reality and possibilities.

Despite the anticipation of an open banking regulatory standard, Mexico’s biggest foreign bank BBVA Mexico has already offered Accounts, Auto Loan and Locations APIs to third-party providers in the financial sector. Banorte & Banca Afirme, Mexico’s fourth and fifth largest commercial banks, have also been quick to adopt an open banking strategy to stay competitive within the domestic market.

Brazil is catching up with a clear regulatory roadmap

Two years ago in April 2019, the Central Bank of Brazil (Banco Central do Brasil) published the fundamental requirements for the implementation of open banking in the country. This publication, Communiqué 33,455, details the open banking goals, definition, scope, regulatory framework and the implementation strategy. With the rise of open banking in Europe, Asia, and North America, the Central Bank of Brazil is on the right track to embrace open banking’s competition boost for financial service providers and enhanced consumer experience as smartphone penetration in the country increases. 

The Central Bank of Brazil publicly discloses that by introducing open banking to the country’s banking industry, Brazillian consumers will benefit from cheaper, better, faster and more convenient access to financial products and services.

As of February 2021, Brazil’s implementation of open banking has officially begun at some of the country’s largest banks. The implementation strategy is split into 4 phases: Open Data (February 2021), Registration and Transactional Data (July 2021), Services (August 2021), and Open Finance (December 2021). Each phase is the progression of the previous phases being built upon a foundation of robust API structures, regulatory adaption, and data security frameworks.

Itaú Unibanco and Banco do Brasil are the two largest domestic banks in Brazil and they are at the forefront of the open banking initiative in the country. As 2021 progresses, 170 million Brazillian consumers and neighbouring Latin American countries will observe the rise of open banking in the continent’s largest country.

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Colombia widens the approach to open banking regulation

Colombia is also quick to catch up on the open banking wave in Latin America. The country’s financial regulatory institution – Unidad de Proyección Normativa y Estudios de Regulación Financiera (URF) – rolled out the regulatory proposal for open banking in December 2020 in order to kickstart the open banking revolution in 2021. The country can expect the materialisation of the open banking regulatory framework to arrive in late 2021 or beginning of 2022, according to Felipe Lega Gutierrez, General Director of URF.

The URF’s proposal includes a coverage of five key areas in the financial sector: promoting the efficient transformation of saving and investment, boosting financial inclusion, consolidating financial security and stability, expanding access to the payments system and strengthening institutions.

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Colombia’s third quarter in 2021 will see an increase in collaborations and partnerships between Fintechs and Incumbent banks as regulators encourage a “sandbox approach” to implementing open banking. A regulatory sandbox is a framework set up by a regulator that allows FinTech startups and other innovators to conduct live experiments in a controlled environment under a regulator’s supervision.

“The long-term goal is to have an open architecture for all financial products and services, something that will require a “step-by-step” construction, starting, preferably, with the incorporation of savings and loans products into the model.” says Felipe Lega Gutierrez, General Director of URF.

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