Open opportunities

Open banking could cultivate a financial services revolution in Brazil.

Open banking is the process by which banks allow the use of Application Programming Interfaces (“APIs”) to enable third-party developers to build applications and services around the financial institution. The basic principle is that the owner of the information is the consumer him/herself, not the bank that accumulates it. Open banking regulation obliges banks to implement the technological infrastructure necessary for customer data to be shared in a standardised way – this is generating exciting opportunities for fintechs who can use data to streamline and enhance their products.   

A senior manager in IT consulting in Brazil explained, “Since 2019, the central bank has been taking steps to enable the implementation of open banking in Brazil, which began to materialise with the start of the first phase of open banking in February 2021. When offering financial services, a bank repeatedly interacts with a customer, and accumulates relevant information about them over time – fintechs can use this data to enrich and diversify the customer experience.”

“Since 2019, the central bank has been taking steps to enable the implementation of open banking in Brazil, which began to materialise with the start of the first phase of open banking in February 2021.”

A senior manager in IT consulting, Brazil

This has opened opportunities for some of the region’s most innovative fintechs including Brazilian instant payment system Pix which facilitated some 8 billion transactions last year. Fintech innovation is spurring new thinking in the public sector too – Brazil’s Superintendence of Private Insurance is now working on open insurance plans, exciting venture capital-backed insuretechs. Open banking has also generated opportunities in the sphere of joint payments – Brazil is one of the largest markets in this area. Last month, Brazilian joint payments fintech Noh closed a seed round of USD 3 million led by US-based Kindred Ventures. 

The more mature phase of the open banking transition is now in full swing and is set to unify different and more complex use cases from savings and loans to investments and insurance under a digital dashboard with customised services powered by actionable data that consumers and businesses entrust to third parties.  

A director of Banco Original in Brazil explained, “The open banking approach is the catalyst behind the transformation of financial services from an industry of vertical silos and legacy infrastructure to an open ecosystem. However, the most interesting phase of this ongoing transformation is the combination with the rise of the platform economy, which will be the dominant business model in the coming years.”

“The open banking approach is the catalyst behind the transformation of financial services from an industry of vertical silos and legacy infrastructure to an open ecosystem.”

A director of Banco Original, Brazil

In this new scenario, banks will have to review their strategies, in the sense of offering services that are more customised to their customers’ needs and their market positioning, to maintain (or conquer, in the case of new players) their brand recognition, which should translate into greater benefits for the consumer.  

The CEO of one of Brazil’s largest financial services companies explained, “This is the kind of context where all types of applications (financial and beyond) will have multiple third-party APIs and developer services running in the background, enabling contextual, predictive and hyper-personalised experiences.”

The length of the relationship with financial institutions tends to be less of a determinant in the supply of banking services. Maintaining long banking relationships to enable the accumulation of information no longer has such obvious benefits for the consumer. “By sharing their data, the customer is able to demonstrate their ability to pay and allows the bank to monitor their financial behaviour, enabling consumers to get better services at lower prices,” adds the CEO. For consumer, long-established financial institutions and innovative fintechs, this is an exciting and mutually beneficial development.  

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