Open banking makes its way in America despite little regulatory momentum
Some countries still lack a minimum regulatory framework, although there is a fintech industry that is pushing harder and harder in all of them.
The opening up of financial markets through technology and the creation of new digital products is progressing unevenly across the Americas. While in this article we analyzed the state of open banking in Asia and Oceani, in this article we focus on several American countries.
While nations such as Mexico and Brazil champion regulations that already impact increasingly mature ecosystems, other countries such as Argentina or Peru still lack regulations and continue to study and analyze movements in other countries. In the middle there are states such as Canada, which has already started its journey although it is moving slowly, and Colombia, which is just beginning to move regulations and decrees in an increasingly dynamic context.
The southern country, like Peru and Colombia, lacks specific regulations on open banking. In September 2019, sources from the Central Bank of the Argentine Republic (BCRA) declared: "We are clear that it is a world trend. So we are looking closely at international experiences and studying the issue to take definitions in the short term." Since then until today, in April 2020, this public entity has not reported any news in this regard, beyond the winners of certain financial innovation awards.
However, the country does have a guide of intent collected in the National Strategy for Financial Inclusion, a documentation prepared by the President of the Nation through the Ministry of Finance. In this report, which despite not containing any regulation, does describe political intentions regarding elements of the financial market that could lead to a hypothetical future development of open banking in this country. Above all, the strategic objectives include promoting financial inclusion, the second of which is "promoting the use of accounts, electronic means of payment, and other financial services, as a gateway to the financial system."
In May 2019, the Central Bank of Brazil published the requirements for the application of open banking in this South American country. This national body establishes that in a first phase banks must share:
- Products and services offered: location of service points, product characteristics, contractual terms and conditions, financial costs, etc.
- Customer data: names, registration number in the Registry of Natural Persons (CPF, in Brazil), affiliation, address, among others.
- Customer transactional data: data related to deposit accounts, credit operations, other products and services contracted by customers, among others.
- Payment services: transfers, payments for products and services, among others.
Disclosing these guidelines is considered, together with the public regulatory consultation carried out in November 2019, as phases one and two of the implementation process, which will have regulation as a third phase. And that is the current time, as Brazilian financial institutions work on the technological development of their platforms, the implementation of interfaces and security certification, as is the case in Europe with reinforced authentication or SCA in the framework of PSD2. The open banking model is expected to begin its deployment, in its fourth phase, in the second half of 2020.
Canada began to make inroads into open banking in 2019, the year in which the Standing Senate Committee on Banking, Trade and Commerce issued recommendations for the authorities to prioritize protecting Canadians’ financial information. The Government, aware of the need to maintain a stable and competitive financial system worldwide, took into account the report and formed a committee to analyze the aspects of the implementation of open banking and its future regulations.
This specialized agency set to work and, at the beginning of 2020, has completed the first phase of analysis. It has concluded that developing a securer technological infrastructure is essential for consumers. For this, in the second phase that will begin in the second quarter of 2020, the committee will work with the parties involved in the implementation of open banking and will give advice on solutions to improve data protection, examining issues such as governance, control of personal data by the consumer, privacy, and security.
The Government will receive the conclusions of this second phase of analysis at the end of 2020, making the northern country lag behind regarding the deployment of open banking.
Despite having more than 200 fintech startups at the end of 2019, being ahead of Argentina (116), according to Finnovista Fintech Radar, and despite the promotion of information carried out by the state regulator, the Financial Superintendency of Colombia (SFC), the country still lacks any specific official regulation for open banking, although it has been modifying certain laws and regulations, such as the case of Decree 222, which simplifies and digitizes contracting certain savings products.
However, back in early 2017 the SFC had formed the Financial and Technological Innovation Working Group to research, promote, experiment and support the use of technology in the financial sector. This was created through three mechanisms: Hub, with the aim of supporting and advising entities related to financial and technological innovation, and which currently has 165 member entities; the Sandbox, making it possible to carry out experiments or technological tests, which has six experiments today; and the RegTech space, with the aim of taking advantage of technological developments to leverage the internal innovation of the SFC, which has five projects.
Meanwhile, the private sector is moving of its own accord. In 2019 Colombia Fintech and the British Open Vector, one of the key players in implementing open banking in the UK, signed an agreement to implement open banking in Colombia. "It will allow us to open a constructive long-term relationship with the UK ecosystem, and thus bring the best regulatory practices from London, today the world capital of financial innovation," Edwin Zácipa, Executive Director of Colombia Fintech, said at the time about this agreement.
The United States
The largest economy in the world is, in turn, the least likely to obtain its own regulation on open banking in the short or medium term, according to a recent report by the Federal Reserve Bank of Boston. This is due to its more complex and fragmented bank regulatory system than in other nations. To date, the United States recognizes that although there is a market and demand for open banking, the current regulatory structure prioritizes consumer protection and focuses on issuing nonbinding guidelines for financial institutions and technology companies.
In 2017, the Consumer Financial Protection Bureau (CFPB) published its 'Consumer Protection Principles: Consumer-Authorized Financial Data Sharing and Aggregation' to address security, privacy and informed consent. In 2018, the U.S. Treasury Department issued a report to the country's President on nonbank financials, fintech, and innovation that put the onus on the private sector to drive toward open banking, which is something that many startups and financial institutions entered into looking for enhanced and expanded digital services for their clients. For example, Plaid offers an API platform for third party providers (TPP) to connect to financial institutions for account access and authentication. Other providers, such as Stripe, connect their API systems to the platforms of these institutions.
Other relevant actions are found, for example, in those carried out by the National Automated Clearing House Association (NACHA), which has partnered with Accenture to create the API Standardization Industry Group (ASIG, which later became Afinis) to develop a tool for financial institutions, companies, fintechs and other industry stakeholders to standardize the use of APIs. With this program, 16 specific APIs have been identified in three categories for further development based on their overall impact on the payment industry: fraud and risk reduction, data exchange and access to payments.
Meanwhile, the Financial Services Information Sharing and Analysis Center (FS-ISAC) developed an API to support secure data transfer, which is aligned with the European PSD2 requirements to help financial institutions use uniform systems when doing business in the United States and the EU.
In the aforementioned Federal Reserve report, dated March 2020, this institution stresses that it may be helpful for U.S. regulatory agencies, such as the Federal Reserve Board of Governors, Federal Trade Commission, and Consumer Financial Protection Bureau, to conduct a study on consumer preferences and perceptions of open banking while the U.S. market is still in its infancy. Developments in open banking and APIs is a topic that U.S. industry stakeholders in various forums will likely continue to monitor and explore.
Mexico continues to climb rungs in the new open financial market. As we already revealed in detail in this article, on March 9, Banco de México (Banxico) published the first rules of the open banking model, laid down in the 'Law regulating financial technology institutions', known as the 'Fintech Law'.
Mexico was a pioneer in launching this regulation back in March 2018. Its article 76 was especially innovative at an international level, which establishes the obligation for the different actors in the financial ecosystem to offer APIs in order to share information with each other.
This progress in setting regulations is now taking hold in a country that is already the fintech market leader in Latin America, with more than 394 companies offering financial services with the help of technology, according to the Fintech Radars, prepared by Finnovista. Brazil follows, with 380; and Colombia, with more than 180.
However, not everything is perfect. The aforementioned Banxico movement, in addition to being limited in scope in terms of data types, is also limited in terms of actors: it only affects credit reporting companies and clearing houses; therefore, the provisions for banks, popular finance companies and other institutions are still pending. Further implementation of this regulation is expected from 2021.
BBVA has offered its APIs in the Mexican market since 2017, making it one of the pioneers in doing so, even before the first regulation on open banking in the country. The Accounts, Loans Auto and Locations APIs are currently available.
This Andean country is lagging far behind in the deployment of open banking, since as of March 2020 it still did not have any specific law or regulation to implement this new framework for financial markets. It is a government initiative that makes a demand on, among others, the incipient Peruvian fintech sector, from which one of the basic actors in any open banking transformation is expected to emerge, TTPs (Third Party Provider, external providers and new actors).
Some experts, however, believe that open banking will reach the Inca country with or without state regulation. "In many countries, open banking is entering from regulation. In Peru it is highly likely that it will not come directly from there because we do not see that the regulator is particularly interested," admits Manuel Romero, from the consulting firm Everis, in this interview for the Peruvian El Comercio. Although he warns: "With or without regulation, open banking will come and Peruvian banks will have to adapt."
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