Categories: Bank Regulation

All Eyes Are On LATAM Open Banking

Open banking is often associated with the European Union (EU) almost by default as the region pushes the envelope further on regulation than anywhere, partly to encourage — but also to keep up with — imaginative FinTech innovators going to market throughout the Eurozone.

PYMNTS’ July 2020 Merchants Guide To Navigating Global Payments Regulations done in collaboration with Ekata, tracks the regulatory landscape for financial institutions (FIs) and merchants involved in cross-border trade, with an eye this edition on how COVID-19 is shaping developments in Latin American (LATAM) markets.

“The health crisis could have significant long-term impacts on open banking development in Latin America, where most countries’ regulators are either revamping existing strategies or rolling out new ones,” according to the July Guide. “Wider acceptance of open banking rules and strategies is occurring in Brazil, Chile, Colombia and Mexico, and venture capital investment interest is following, even as many of the region’s merchants are assessing the pandemic’s negative financial impacts.”

FinTechs Flourishing

Latin America has emerged as another hotbed of open banking activity, and, the July Guide states, “FinTechs are creating open banking solutions for these markets, and several are leveraging application programming interfaces (APIs) to support platforms that connect banks, businesses and consumers. Financial institutions (FIs) are interested in fostering this expanded connectivity, too: One recent study shows that 86 percent of banks worldwide predict they will use APIs to promote open banking within the next year.”

Brazil and Mexico particularly have gotten out in front of open banking regs, as they strive to create good growth conditions for finicky FinTechs that tend to wilt if overly boxed-in.

“Open banking initiatives have rapidly made inroads in Latin America, where countries like Mexico are upgrading rules passed just months after the EU rolled out PSD2,” according to the new Merchants Guide To Navigating Global Payments Regulations. “Rising interest in digital tools, especially online payments, is also expanding other key FinTech Latin American markets: 73 percent of Brazilian consumers report that they would be open to banking with online-only banks, for example. These countries are examining and adjusting their guidelines for FinTechs and other third parties in response to the pandemic, yet the crisis may have long-term effects on regulations in the region.”

Similarities To The EU

When lawmakers in Mexico passed “The Fintech Law” in 2018 on the heels of PSD2’s passage by EU members, it helped set the stage for what’s happening throughout LATAM today with its exciting mashup of legacy banks, platforms, rails and FinTechs connecting it all via APIs.

“Growing interest in open banking typically coincides with the expanding use of online financial platforms and tools,” per the July Guide. “The creation of open banking initiatives in the EU followed a steady increase in the usage of digital banking products both inside and outside Europe. A similar pattern is unfolding in Latin America, with interest in online services spiking as digital tools and solutions steadily filter into the region.”

The prime “digital tool” making the whole scene possible is the nearly-ubiquitous smartphone. LATAM has plenty of those, and open banking proponents there attest to not just commercial but also humanitarian motives.

“Both Mexico and Brazil also have large shares of unbanked consumers,” the Guide states, “and the pandemic is highlighting that many are choosing to interact with FIs and businesses through mobile phones rather than traditional channels.”

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WATCH LIVE: HOW WE SHOP – TUESDAY, NOVEMBER 10, 2020 – 12:00 PM (ET)

New forms of alternative credit and point-of-sale (POS) lending options like ‘buy now, pay later’ (BNPL) leverage the growing influence of payments choice on customer loyalty. Nearly 60 percent of consumers say such digital options now influence where and how they shop—especially touchless payments and robust, well-crafted ecommerce checkouts—so, merchants have a clear mandate: understand what has changed and adjust accordingly. Join PYMNTS CEO Karen Webster together with PayPal’s Greg Lisiewski, BigCommerce’s Mark Rosales, and Adore Me’s Camille Kress as they spotlight key findings from the new PYMNTS-PayPal study, “How We Shop” and map out faster, better pathways to a stronger recovery.