Open finance faces lack of financial education after 2 years of operations

The open finance –ecosystem that allows the sharing of personal, banking and financial data between institutions, upon authorization– completes two years in operation with 15 million customers, according to data from the Central Bank.

Adherence, still timid and equivalent to around 8% of the 188 million Brazilians who have a bank account in the country, reflects the lack of financial education of the population and the complex operational implementation of the system.

The objective of open finance is to encourage innovation and stimulate competition in order to expand and make the offer of financial services cheaper.

Today, there are around 800 participating institutions, including banks, credit unions and fintechs, and 22 million active consents.

The number of consents is greater than the number of users because data sharing depends on customers’ authorization for each specific purpose for the chosen period of time. That is, a person can give more than one consent to a given institution and revoke it at any time.

João André Pereira, head of the BC’s financial system regulation department, recognizes that the population’s fear of sharing information is a challenge for the consolidation of open finance, but believes that this obstacle will be overcome as the benefits become palpable to the customers’ eyes.

“The tendency is to grow as we go through all the implementation stages. Functionalities are coming in, financial institutions are thinking about new products, offering benefits. What does it matter for a person to share? He understands that he has a benefit behind, that by sharing your data, you will have access to such opportunities”, he says.

According to a survey carried out by Febraban (Brazilian Federation of Banks) with open finance participants, 45 products and services are already offered to customers, including, for example, financial aggregators and solutions for better credit conditions.

The initiation of payments –a function that came into force in the third phase of implementation and allows the user to move their account from different platforms— is seen by Marcelo Martins, executive director of ABFintechs (Brazilian Association of Fintechs), as a decoy for the system.

“When we look at 2022, it was a year of discovery, of new functionalities, now 2023 is the year of consolidation. There are already use cases, a minimally stable technology. pay attention to the initiation of payment. I believe this will be the first gateway for the common user to open finance”, he says.

The expectation of the BC and the institutions is that the ecosystem will gain more robustness this year with the implementation of the fourth phase of the project, which will include participants from various sectors, including insurance companies, investment brokers, foreign exchange and pension plans.

“It will be the moment when the system truly becomes open finance”, sums up Martins.

The official launch of open finance, or open financial system, was approved in a resolution by the CMN (National Monetary Council) on March 24, 2022. But the implementation schedule has changed due to the need for operational and regulatory adjustments.

It is part of the evolutionary agenda of the infrastructure called open banking, which kicked off on February 1, 2021 and involved only banking participants at first.

Customer data actually started to be shared between financial institutions in the second phase, which was implemented in a staggered way. In a first step, it was about registration information, such as address, income and personal data and, in a second moment, data on credit operations and credit cards.

In July 2022, director Otavio Damaso (Regulation) said that open finance was not yet working “at full steam” and that some obstacles to communication between financial institutions had been identified.

“We still have some problems of inconsistencies, which the supervisory area is dealing with on a case-by-case basis. But this information is already circulating, and banks are already taking advantage of this information to better understand their customer’s behavior and demands” , he stated at the time.

At the event, Damaso acknowledged that the deadline stipulated for the implementation of the system was “tight” and also highlighted that the APIs (communication interfaces through which the institutions communicate) needed to be “100% fixed” for the customers’ information to flow smoothly quality.

According to the head of the Central Bank’s financial system regulation department, a “setting brake” was applied in recent months, which made the success rate of communication between participants in the system jump from around 40% to 97% .

“When the interconnectivity problems started to appear, the institutions resolved bilaterally. But, for it to work, there is no point in having bilateral solutions, it needs to be [uma resolução] global. A lot of effort has been made within the governance structure to get all these issues sorted,” he says.

The monetary authority emphasizes that open finance was conceived as a longer-term project, given the complexity of the technological and conceptual structure of its infrastructure. “We always have to remember that open finance is not a product, it’s a large network”, says Pereira.

According to him, the main effects of the system, such as reducing the asymmetry of information between institutions and boosting competition, will be perceived over time and gradually.

“The rise of open finance is something in the medium and long term, even with less fancy and innovative products, we have already seen a very large growth since the beginning compared to other jurisdictions. I would say that it has already taken off, now the trend is only to improve”, he adds .

According to a report released by Open Banking Excellence, in partnership with the University of Oxford, Brazil tends to overtake the United Kingdom, a pioneer in the implementation of the system, and assume the global leadership of the ecosystem.