By the end of this year, open banking will be a reality in Brazil. And while it promotes customers’ control of the use of their data within the ecosystem, it also empowers clients to easily move from one financial institution to another.
At Ciab 2021, executives from Bradesco, Itaú Unibanco and Brazil’s Central Bank debated the opportunities open banking brings and the importance of having a customer-first strategy to succeed in this new era.
This new environment allows sharing of data, products and services between regulated entities — financial institutions, payment institutions and other entities licensed by BCB — at the customers’ discretion, as far as their own data is concerned (individuals or legal entities).
Open banking is expected to allow many business opportunities, but the companies that succeed will be the ones that put customers in the center of their strategy, said speakers.
“When you organize mobility and secure interoperability, you can reach the level of full digitization,” said João André Pereira, department head at Brazil’s Central Bank (BCB).
“Open banking and open finance are opportunities to enhance customer experience and it’s related not only to products and services, but also to personalizing solutions,” added Carolina Fera, director at Bradesco Experience, responsible for customer experience and digital transformation.
Marcos Alexandre Pina Cavagnoli, cash management director at Itaú Unibanco, said he believes that Brazilian open finance will be a world-class use case.
“2021 is the year in which data and information generated by them becomes the main topic of discussion,” he noted.
Data protection and security: critical for open banking in Brazil
A key pillar for the success of open banking is related to information security, speakers noted. The participating financial institutions are responsible for ensuring the transparency, data quality (reliability, integrity, and availability), security and privacy of data and services shared. That includes non-discriminatory treatment, reciprocity, and interoperability.
“Open banking is a secure and organized manner to implement data protection law in the financial system,” said BCB’s João André Pereira.
Bradesco’s Carolina Fera added that data protection is the basis of an open banking ecosystem.
“Customers will only share their data in a secure environment, but it’s necessary to understand that open banking gives customers power – and power requires responsibility, so the communication with the clients must be clear, meaning that customer has to be clear about what will be done with his data,” she noted.
Brazil’s open banking phases
The implementation of open banking in Brazil is divided by four phases; and the deadline for the first one ended last February 1. That centered on sharing data on the participating institutions.
The second is due to come into force on July 15, and comprises the registration of the customer and its representatives data, as well as transactional data related to the products and services of phase 1.
Then, institutions have until August 30 to include in the system information related to loan applications and payment initiation transactions. These include payments from account debits, book transfers, ‘Transferência Eletrônica Disponível’ (TED), ‘Documento de Crédito’ (DOC), instant payments (through Brazil’s interoperable instant payments platform Pix) and payment slips.
The open banking roll-out ends on December 15, with the inclusion of products and services related to foreign exchange transactions, acquiring services in payment schemes, term deposit accounts and other investment products, insurance, and open pension funds.
Regulatory sandbox: a path to innovation.
With Pix and Open Banking, the Brazilian financial system is going through several major innovations. However, innovation within financial markets entails regulatory issues.
“Technology and innovation are drivers for the financial and payment systems. The role of BCB is to allow innovations in these markets and support companies”, said Angelo José Mont’alverne Duarte, head of the BCB’s department of competition and financial market structure.
“BCB made possible the entry of fully digital means of payments and business plans that are serving audiences that were not served before and generating a healthy competition,” he added.
To facilitate innovation, the BCB has launched a regulatory sandbox – an environment where the regulator licenses institutions to test an innovative project, for a certain period under a controlled environment.
BCB introduced the ‘Controlled Testing Environment for Financial and Payment Innovations’ (BCB Sandbox) to ensure a strong framework for assessing financial and payments innovations, said Duarte.