In January 2018, the PSD2 directive came into force in Europe, opening up the EU payments market and enabling new services for consumers, through a concept known as open banking. Since then, a culture of innovation has taken over the European financial system, generating new products and giving customers more autonomy.
In open banking, data is owned by the customers themselves and no longer by banks, meaning that they can authorize the sharing of their data between several financial institutions according to their interests.
In Brazil, a country with an extremely concentrated banking sector and where nearly one out of three Brazilians is unbanked, open banking emerges as a great opportunity for modernization. In fact, open banking has the potential to disrupt the Brazilian market by increasing competition and offering customers a wider variety of financial products. Already under discussion at the Brazilian Central Bank, news about the new regulation will reach consumers gradually in the coming months. So, why is open banking essential in bringing Brazil's financial system into the future?
First, open banking represents a cultural change. For banks and financial institutions, this means being open to new business models. The banking environment becomes more dynamic and competition increases, improving the customer experience.
Innovation becomes a key word for large financial companies. Traditional and inflexible products are no longer attractive to consumers. Therefore, to innovate is to survive. Large banks can, for example, partner with startups to create new credit and investment services, a move that is very common in Europe.
In a country marked by inequality like Brazil, open banking gives citizens more autonomy and the ability to better manage their money. Through a single financial management platform, small business owners or self-employed professionals can have an overview of their financial situation, including expenses, investments, bill payment, and invoices, regardless of the bank or financial institution where each of these operations is carried out from. In the UK, major banks like HSBC and ING already offer financial management applications, in partnership with technology and innovation companies, which have access to customers’ account information and organize all the data in a single interface.
The Brazilian Central Bank has managed this challenging process in a thorough and effective way. The regulatory institution has a central role in defining rules that benefit all the players involved and bring security to this new financial ecosystem. With this period of growth, banks and financial institutions have been conducting tests to create secure and encrypted systems, in order to prevent data leaks and fraud. It is worth mentioning that the Brazilian open banking model will be in full compliance with the General Data Protection Law (LGPD), the Brazilian version of Europe’s GDPR, which will come into force in August 2020.
Open banking is a game changer for the financial life of Brazilians and for the country's economy in general. It represents more competition, freedom and autonomy, while strengthening the market and encouraging people to take better care of their money. For big banks, it is time to think outside the box and be on board with this evolution.