This month, Open Finance celebrated its third anniversary in Brazil, with significant investment from banks and fintechs to innovate the product while users gradually embraced its potential. Open Finance still appears to be gaining momentum in the face of the rapid win of Pix, the central bank instant payments tool introduced in late 2020. However, the system, which aims to revolutionize Brazil's financial services, is steadily progressing behind the scenes.
According to official data, the system currently boasts over 42 million consents, of which 28 million are specific to individuals or companies. Open Finance's total number of weekly API calls reached 1.5 billion by mid-January, a triple increase from 500 million about a year ago. Local banks association Febraban said this would make Brazil's open finance the largest in the world.
There's a reason why it's not as popular as Pix…
Open finance, also known as open banking, allows customers to share financial information between authorized institutions. Each account holder gives the bank or fintech permission to access certain data held by another provider, and a direct connection is established between them based on the customer's consent, and the customer can access the data at any time. You can revoke that permission. Experts claim that this has great potential to significantly improve the quality of financial services and reduce costs for users.
However, this is largely unknown to everyday Brazilians. Open Finance was introduced just a few months after its big brother, Pix, but it is far from explosively popular. Pix has quickly established itself as the payment method of choice for all Brazilians.
But experts say there's a reason for this. Unlike Pix, which is a readily available, very useful and practical service, Open Finance is an infrastructure. This enables the development of services through client connectivity and information sharing on the backend. “Open finance will never be as popular as Pix,” said Carlos Augusto de Oliveira, executive director of Brazil's ABFintechs. “As with any infrastructure, clients may not necessarily realize that they are actually benefiting from it.”
The fintech advisor said it will depend on further construction and development of new services before their benefits become tangible and buy-in for customers.
A turning point for open finance in Brazil?
In fact, the infrastructure is still in its infancy and it could take several years for participants to develop new products. Additionally, users say the experience is still far from ideal and there are few features currently available to validate the tool's usefulness.
However, experts believe that this situation could change in 2024, mainly due to the arrival of new products and integration with its older sibling, Pix.
“2024 is expected to be a year of significant growth for Open Finance, especially in combination with Pix,” said Oliveira. Pix is currently the payment giant in Brazil with approximately $400 billion in monthly transactions. Central banks are constantly releasing enhancements and new features, and his Pix Automatico, which resembles a direct debit in recurring payments, could really push its use this year and highlight the benefits of Open Finance. .
“By some estimates, by the end of this year, around one-fifth of all transactions on Pix will be executed through this method, which is made possible thanks to Open Finance's integration framework. ” said Oliveira.
For Pablo Viguera, co-founder and CEO of Open Finance company Belvo, Pix-related products are important to moving Open Finance forward. “This change will not only make financial services more accessible, but also allow them to be customized to each customer's unique requirements,” he told Fintech Nexus. “This evolution could be a significant milestone in the same way that Pix has had a transformative impact on the payments landscape.”
Open finance is the key to increasing trust
In particular, open finance can play an important role in lowering lending costs in a country notorious for above-normal net interest margins where interest rates in the unsecured sector can easily reach triple digits. Masu.
“Open finance will become a competitive advantage in 2024,” said Viguera. “In the face of the region's complex macroeconomic environment, where access to credit can be difficult, lenders need to find new ways to improve their risk assessment processes and decision-making.”
Belbo believes that in 2024, new methods will be integrated that leverage transaction data extracted through open finance to measure credit risk and, in some cases, complement and replace traditional methods. The company partnered with Brazil's FICO to develop a new credit score based on data collected using the Open Finance framework.
“This is an example of how combining AI and transaction data can be a win-win for financial institutions and customers,” he told Fintech Nexus. “It will drive unprecedented innovation in Brazil’s financial sector.”
