The march of open banking in Latin America

Rumblings on the open banking regulations front are growing louder in Latin America, with most of the ‘noise’ coming from Brazil and Mexico.

Next month Brazil is poised to become the first country in the region to introduce a regulatory framework for open banking, followed by Mexico in 2021.

They will join the likes of the UK, Hong Kong and Australia, which have also adopted a regulatory-driven, rather than market-driven, approach. 

Within several years open banking should have a strong foothold in Latin America, Ximena Aleman (pictured), co-founder of the region’s biggest open banking platform, Prometeo, told BNamericas.

“Open banking is a change that is here to stay,” said Aleman, whose company is sharpening its focus on Brazil and Mexico.

“I don’t think it’s a coincidence that the region’s two biggest economies are regulating open banking. I think that this trend, within 3-5 years, will have taken root in the region.”

Citing the fact only one in three transactions in the region is digital, Aleman said: “It has much potential to digitalize the financial system in Latin America.”

Growth in the interchange of data in the UK following the implementation of the country’s framework has been exponential. “These are signals that indicate what the impact could be in Latin America,” said Aleman, outlining the sharp focus the company maintains on transaction security. “What it will generate is a financial system that is much more digital, with more digital transactions and a much larger provision of financial services and products than there is today.”

Regulatory frameworks help generate interest in and awareness of open banking, Aleman said, adding that a challenge of authorities is seeking rules that would not hinder the scaling up of fintechs, such as those that want to operate in multiple jurisdictions.  

Open banking gives users control over their data. Under the model financial institutions must share with third parties, such as fintechs, the data of a user, provided the user has given consent. Data is transferred through an API, which acts as an interface between the systems of the institution and that of third parties.

A key aim of open banking is boosting competition and transparency within the financial services space.

“This, in Latin America, is fundamental because it has a highly concentrated financial sector… [countries] where 4-5 players control 80% of the market,” Aleman said. While open banking – or rather the wider concept of open finance – would unlikely result in a sharp uptick in financial inclusion, it would encourage those already in the system to make better use of financial products and services on offer. 

Prometeo develops open banking APIs to support the development of new products, such as payment tools, and support back offices processes in areas such as compliance and onboarding. The company has built an ecosystem that has, as its core, 30 incumbent financial institutions across nine countries, including some of the region’s biggest commercial and state-owned banks.

“While there are some places where there are no regulations, there are companies that recognize the business benefits of implementing open banking initiatives. That’s where we come in, as an open banking provider.”

Regulatory frameworks – by requiring financial institutions to share client data on request – would support the expansion of national ecosystems.

In the region, open banking rumblings are also being heard in Ecuador, Peru, Colombia and Chile, with the latter recently implementing a financial portability law, seen as a first step on the path to open banking.