The Central Bank has been implementing a system to share data and services between institutions. initially called Open Bankinghe changed his name to Open Finance, as it now includes services beyond bank accounts. The idea is to give more freedom to customers of financial institutions and encourage competitiveness between large companies and startups.
What is Open Banking?
Open Banking (or open banking system) is an infrastructure to decentralize the financial information of large operators, such as traditional banks, to allow the customer to choose which solution to use, keeping control of their own data.
Before Open Banking, the customer lost all their financial history when going to a new institution. This information belonged to each bank, fintech or startup. So switching banks was a disadvantage.
The platform allows you to take the financial information of each profile to any other institution, without having to build a relationship with the bank from scratch.
“You are a customer of bank X. With Open Finance, you can enter the application of bank X and bring the data of transactions you have made, and also your registration data, which are in bank Y or Z in which you have an account. ”, explains to technoblog Bruno Diniz, leader in Latin America of the Financial Data & Technology Association (FDATA) and author of the book The Fintech Phenomenon.
With Open Banking, you can also use one bank’s system to access services from other banks where the customer also has an account. It is possible, for example, to use the app of bank A to access the balance and statement of bank B.
This is possible from open APIs — application programming interface (API) is the name given to the portion of a program made available to be integrated into other platforms.
An example of API usage is logging into websites through Facebook or Google. APIs are provided to these sites so that they have access to that user’s account information.
The first phase of Open Banking started on February 1, 2021, while the fourth and final one started on December 15, 2021.
The first phase was just for companies, with information sharing about products, services and rates. In the second, customer registration and current account data began to be shared, with their consent.
The third phase was the payment launchers, which allow you to start a Pix in an app and just confirm it at a bank. At this stage, the possibility of sharing financial history also began.
In the fourth and final phase, data such as investments, private pension and insurance, among others, also began to be migrated from one bank to another.
How does Open Banking work?
The website of Open Banking Brasil, the platform’s governance organization, lists two possibilities for using the system: data sharing and payment initiator.
For data sharing, the customer must first use the app of the bank or company to which he wants to take his data. There, he chooses the institution of origin, which data will be shared and the term of consent.
Then, a redirect takes you to the data source institution. There, it is necessary to authenticate and confirm the operation. A new redirection leads to the institution that will receive the data, where the sharing takes place.
What are the main benefits?
Diniz also explained to the technoblog some of the advantages that Open Banking already offers and will still offer.
He explains that, often, the institution “cannot have full visibility of the customer”, which makes it difficult to offer products – things like credit card limits or insurance with better conditions, for example.
“Once the client is able to make the portability of this information, he obtains better benefits in the company with whom he shared the data”, says the expert.
As Open Banking evolves, new experiences will be possible. “You will be able, for example, to have visibility of your financial life in the application of a single institution”, comments Diniz. “From the institution X application, you will be able to consolidate current account information, loans, investments you have in institutions Y and Z, all on the same screen.”
Is Open Banking Safe?
One of the main features of Open Banking is that only the customer has the power to authorize data sharing. Without consumer consent, one institution cannot access information from another.
According to Open Banking Brasil, “the process is 100% digital and carried out within a secure environment, under the supervision of the Central Bank”.
Diniz does not believe that the customer has anything to lose when he authorizes the sharing of his data, nor does he take any additional risk. “The risk of data leakage, which exists in all institutions, does not happen at the time of sharing.” He also points out that financial companies’ systems have world-class security standards.
Is it possible to know what information is shared between institutions?
Yea! As the Open Banking Brasil website explains, right at the first moment of data sharing, when making the request in the app of the institution that will receive the data, it is possible to choose the scope of the information that will be passed on.
Another characteristic is that the sharing has a deadline; after this period, the company that received the data does not have access to the information, and the customer decides whether or not to renew their consent.
What is the difference between Open Banking and Open Finance?
Open Finance is the new name of Open Banking. The project went beyond accounts and credit operations and now also includes foreign exchange, investments, insurance and pensions.
“Open Banking was a term that emerged in the UK around 2016 when they started implementing it. There, the total scope was reduced, with information from bank accounts, basically”, explains Diniz. “In Brazil, we were very inspired by the British model, but we were already anticipating an expansion of scope, with products from loans, investments, foreign exchange and private pensions, for example.”
According to the Central Bank, this may be useful, for example, to take out insurance with better conditions, since the company will have access to the client’s financial information in other institutions.
In the future, the BC intends to create interoperability between Open Finance and the Open Insurance (Open Insurance System) of the Superintendence of Private Insurance.
Which companies participate in Open Banking?
The list of banks, fintechs and brokers that participate in Open Banking (or Open Finance) is quite extensive. It includes the “banks”, such as Itaú, Banco do Brasil, Bradesco, Santander and Caixa; brokers such as XP; and fintechs like Nubank, PicPay and Mercado Pago.
The Open Banking Brasil website has a list of companies that participate in Open Finance. It is worth noting, however, that not all offer all the features of the platform so far.
With information: Brazilian central bank, serasa, Open Banking Brazil.