“Building your own bank will be possible” – Brazil’s Central Bank director on Open Banking

RIO DE JANEIRO, BRAZIL – Overdrafts can be expensive for consumers. Even with the monthly 8% cap, it may reach around 151% per year. Now consider the possibility of choosing the bank that offers the best overdraft limit and conditions.

Even if customers do not hold an account with the institution, they may choose to send their data and use the best overdraft available on the market should they need or want to, and do it in just a few clicks from home.

This example of what Open Banking can offer consumers was shared by Open Banking regulatory director Otávio Damaso during a panel promoted by XP Inc. on Tuesday, July 13. He says that a customer keeps data in institution A, but found that institution B offers better conditions.

“A customer shares his/her data with bank B and expressly authorizes bank B, in possession of this data, to monitor the daily activity of the customer’s checking account, for instance. When the account is negative, bank B offers a credit aligned to the client’s profile at a lower cost. Nowadays we don’t have competition with overdrafts, no one changes bank because of overdrafts – despite the high interest rates and low limits,” Damaso said.

Such examples may soon become a reality in Brazil, as the second phase of Open Banking is about to begin in Brazil on August 13, and it will be the kickoff for transformations such as these to emerge. This stage is part of four phases scheduled to begin later this year.

Benefits for consumers

Damaso summarized the benefits that Open Banking should provide consumers. “It will be possible to build your own bank, getting the best products from each institution; it will reduce information asymmetry and market inertia; it will intensify competition and provide greater convenience to consumers,” he said.

He points out that the success of Open Banking will depend on consumers realizing that sharing their data can be beneficial. Banks will only be able to do this with the client’s consent.

“In practice, customers will only authorize bank B to collect data from bank A, where they have an account, when they realize that bank B has a better or complementary product to the one they have at bank A. In our day-to-day life this already happens: on our cell phones we have several apps, one that helps with personal transportation, another that delivers food, another that helps us manage our bills,” said Damaso.

“And for each one of these you have identified a benefit, you have authorized it to collect the data it needs about you to offer the service, and you have benefited from this in some way. In the financial system it will be no different,” he pointed out.

With Open Banking, consumers will be able to aggregate financial products and services from different institutions in a single place.

“If today our life is on the cell phone, that is, everything we do we look at our cell phone to access apps, in the future we will be able to access a single app that aggregates all this and provides convenience for managing our financial life,” explained Damaso.

XP Bank’s CEO José Berenguer, who also took part in the live stream, added that Open Banking can be summarized as a much more accessible and complete financial management tool that will enable customers to have many more quality options.

“Customers are the heart of Open Banking. They will have more power when it comes to deciding what financial product they want, who they will buy it from, how they will buy it, when and how they will do it. Competition will increase and customers will benefit,” he said.

Central Bank’s innovation agenda

Open Banking is one of the main innovation initiatives along with Pix, the instant payment system created by the Central Bank.

“The Central Bank is delivering a technological platform through data fluidity, with the possibility of generating new business models, new products and services at a reduced cost and customization for citizens,” Damaso said.

According to him, the Open Banking concept will encourage all institutions part of the ecosystem to develop new solutions.

“This fits into a much broader initiative of the Central Bank to foster competition, inclusion and provide greater efficiency to the financial system, easing the entry of new players,” he said.

“The financial system today is very different from what it was five years ago, and it will certainly be very different five years from now. Open Banking will transform the financial system in the coming years,” the Central Bank’s director said.

Damaso also pointed out that international experience has helped the Central Bank find the best format for Open Banking in Brazil. Countries like the UK, Australia, Mexico, the USA, among others, have taken steps in this direction.

“Each country has a specific goal to implement: it may be innovation, inclusion, adaptation to the local data protection law, search for more competition, etc. In Brazil, we are doing a bit of all of this. It is a highly comprehensive Open Banking and we want to incorporate all these aspects in our regulation. It will be as broad as possible,” he said.

Data is gold

Damaso highlighted the importance of data for the financial system to advance. “The most valuable asset of Open Banking is data, that’s gold. It is the most precious element for developing new services and products. Data will flow through the Open Banking ecosystem in a detailed, standardized way and through fast and efficient digital means. And the challenge is for companies to get the best out of it”, he said.

At XP Inc., work is hard in this sense: Bruno Guarnieri, the company’s CTO, said that Open Banking is coming to solve problems in several aspects, such as supply and experience.

“This will require us to know clients and understand their needs even more. No one can simply be a provider. You have to consider: how can you better serve your customer with the data we will have available? And experience is the ‘end game’ on how to provide the best for the customer to use,” he said.