Brazil has moved to shake-up its financial services ecosystem by approving the introduction of open banking, with the Central Bank of Brazil approving and issuing guidelines for review while the model is implemented.
Brazil hopes that the rolling out open banking regulations will stimulate competition and more effective service provision while protecting personal data in line with the country’s recently approved data protection regulations.
Timetable for change
The Central Bank of Brazil’s directive outlines the information that should initially be shared among financial institutions – including new entrants such as fintechs – for the products and services offered, including the locations of service providers and customer data including social security numbers, names and addresses.
Other data to be initially shared includes customer transaction details such as deposit accounts and credit operations, as well as data on payment services, such as payments for products, services and transfers.
Scheduled for the second half of this year are public consultations over the introduction of the open banking model, minimum requirements for implementation as well as an overall schedule.
The central bank expects open banking to be introduced by Brazil’s top 12 banks, which collectively account for 86% of the system’s loans and assets, in the second half of 2020.
In an interview with Euromoney, Ceres Lisboa, senior vice-president in Moody’s financial institutions group in São Paulo, said the new regulations will enable fintechs to develop applications based on banks’ application program interfaces (APIs), increasing transparency and efficiency in Brazil’s financial system.
“As banks shift to an open-banking platform over the next two to three years, and consumers become aware of their options and embrace a more modular approach to banking services, competition will increase, particularly around lending spreads and banking services prices and fees,” she says.
The central bank also hopes that open banking will lower Brazil’s cost of credit by reducing delinquency rates as lenders access more detailed financial information about individuals and companies.
Despite the aim of increased competition, Claudio Gallina, senior director and head of South American and Caribbean financial institutions at Fitch Ratings in São Paulo, expects Brazil’s large incumbent banks to remain dominant in the short- to medium-term and that the initial impact of the regulations will be to increase IT costs.
Gallina expects that competition will come both from fintechs and also from smaller banks keen to grow in certain credit sectors, but cautions: “The big banks will remain very big and have shown in the past that they can respond to new models by adapting or acquiring the competition.”