Let’s start from the source. From the Central Bank of Brazil’s announcement:
The newly issued regulation on open banking (‘Sistema Financeiro Aberto’) enables the sharing of registration and transactional data from individuals or legal entities through a secure, prompt, accurate and convenient manner — at the customers’ discretion, in the case of data and services that identifies the customer.
It reads like a minor, insignificant change in regulation, but the implications are huge. It basically opens what has effectively been a closed market to real competition for the first time, to allow more than just the traditional four giant banks that have dominated for years. Sharing registration and transaction data connected with a standardization of the use of APIs means more companies can enter the industry, which means less cost for the market as a whole.
The door opens for digital banks and fintechs, which are smaller, 100% digital and use apps and online platforms to support their customers, rather than traditional physical branches. They are more nimble and innovative than traditional banks. Digital banks have already demonstrated in a number of regions that they can outperform traditional banks on customer service and product features (and profitability). They are able to launch features and develop partnerships to meet consumer needs much faster. Of course, they don’t have the brand awareness, political relationships and capital resources of traditional banks, but this mix of strengths and weaknesses is creating an interesting knowledge transfer. In some instances, fintechs have even pushed incumbents to better serve and support their customers. In short, Open Banking offers the following advantages:
- freedom of choice and autonomy for customers
- more competition and innovation for the market
- increased accessibility of services
- standardized use of APIs → lower cost for all parties