Feature: Where is Latin America on its Open Banking journey?

Ellie Duncan,
08 Jun 2021

Like all regions, Latin America is on a journey when it comes to Open Banking implementation, but it would be a mistake to assume that all Latin American countries are moving at the same pace. Not only are they all at different stages, there are also slight variations when it comes to being market-driven or regulatory-driven in their respective approaches to Open Banking adoption.

Mexico has led the way, with the regulator helping to incentivise change in the country rather than enforcing it, and Brazil is not far behind.

According to the FT Partners report Open Banking: Rearchitecting the Financial Landscape published in March 2021, Mexico’s ‘Fintech Law’ was approved in March 2018, “providing a regulatory framework around Open APIs”.

First movers

Carlos Figueredo, CEO of Open Vector, which helps implement Open Banking and open finance at a country level, was involved in the creation and implementation of the CNBV Mexican Fintech Law, which he says was “the first open finance initiative globally”.

Figueredo adds that Brazil is also making decent headway.

“While it’s regulator-driven [in Brazil], there is a market-driven component that they’ve left open to allow for the market to have input into the design of Brazilian regulation and the structure of Open Banking.

“Has it been really smooth? They’ve already faced one delay and they are most likely to face a second delay,” Figueredo says.

But he notes that while Brazil has met some resistance and experienced a few issues, it is part of the process. “I don’t think any Open Banking implementation will be smooth,” he adds.

Brazil and Mexico have been the “first movers”, with Colombia likely to be the third country to adopt Open Banking, followed by Chile, which, according to Andre Luiz, chief operating officer at Latin America-based fintech a55, has already created a financial portability system.

“We are very excited with LatAm improvements in Open Banking,” Luiz adds.

Figueredo, who is working with the Colombian government in their approach to Open Banking, says that many financial institutions in the country already have APIs.

“It just tells me that financial institutions are already understanding the opportunity and have created the technical architectures to be ready for it,” he adds.

However, he points out that the financial services government body leading the initiative, the URF, are considering a market-driven initiative.

“While it is a very good opportunity for Colombia, I think every open initiative should be much more regulator-driven than market-driven. I think market-driven gives the banks a ‘get out of jail card’ to do whatever they want – either drag their feet or take it as far as they want,” Figueredo says.

A white paper on Open Banking was presented to the Chilean Senate in 2020, which suggests the initiative is underway, although still some way behind Mexico and Brazil.

Fintech funding

“There is really a vibrant fintech and Open Banking ecosystem in Latin America, particularly in Brazil, which is home to headline-grabbers like Belvo and Nubank,” says Brian Hanrahan, CCO of Sentenial Group and Nuapay.

Open finance platform Belvo raised $43 million in a Series A funding round in June this year, attracting both new and existing investors, and building on its $10 million fundraising in June 2020.

According to data from Crunchbase, it is the largest ever Series A funding round for a fintech company recorded in Latin America to date.

In May 2021, a55 announced it had secured an investment of $35 million through a combination of debt and equity to fund its Mexico expansion plans, with participation from Accial Capital, E3 Negócios and venture capital firm Mouro Capital.

Luiz cites the statistic that in Brazil alone, potential revenue from fintechs is projected to reach $24 billion over the next 10 years.

Hanrahan says: “We expect that players with proven platforms established over the last several years in the first mover Open Banking regions like the UK and Europe, such as Ozone API, are going to play a part in increasing Open Banking adoption in the region.

“What’s more, there is real demand for solutions that offer global coverage, and certainly some players will meet that need.” 

Financial inclusion

In a region where there are countries with high numbers of unbanked, Open Banking has been seen as a chance to solve for issues around social and financial inclusion.

Luiz notes that many Latin American fintechs have been created with financial inclusion in mind.

Hanrahan explains: “Fundamentally, Open Banking increases competition and innovation in the financial services space, which supports financial inclusion.

“More specifically, in countries which have a large unbanked or underbanked population, such as Brazil, Open Banking helps to make financial services more accessible and attractive.”

While it is still early days, there are signs that it is working.

According to research published in October 2020 and conducted by Americas Market Intelligence in partnership with Mastercard, 40 million people in Latin America were banked in the five months prior. The research attributed much of this to the pandemic, which forced people to start banking online.

Collaboration, collaboration, collaboration

Figueredo, whose firm Open Vector was involved in the Open Banking Implementation Initiative (OBIE) in the UK, says that in comparison Latin America is more collaborative in its Open Banking adoption.

“The UK was the very first Open Banking initiative globally, anywhere. We had nothing to measure against it so, of course, the banks were very resistant, there wasn’t the level of collaboration we now know today,” he explains.

“Latin America, in that sense, is a much more collaborative space with financial institutions being more open to the understanding of the opportunity, also because they understand a lot more today the threat of big techs and fintechs in the financial sector space.”