Brazil, Mexico leading way as Latin America is increasingly adopting open banking

There is a boom taking place in the fintech landscape in Latin America, where it is transforming financial services in the region.

Latin America is increasingly adopting open banking with Brazil and Mexico leading the way. Open banking has come to Latin America on the back of a booming fintech sector.

Latin America, while being a late entrant into this space, is moving faster and looks to catch up with other regions earlier than expected, based on the findings of a new research a paper by the Bank of International Settlements. The paper titled, The Dawn of Fintech in Latin America: landscape, prospects and challenges by Carlos Cantú and Bárbara Ulloa, looks at how fintech is transforming financial services in Latin America, showing that fintech investment in the region grew more than 100 per cent between 2017 and 2019.

Mexico and Brazil singled out

The researchers found that fintech has quickly gained traction in Latin America, mainly in the areas of payments and alternative finance. The research singled out Brazil and Mexico, which have already enacted laws to regulate the financial technology market as they driver for greater open banking and bringing more of the unbanked into the formal banking system.

The research paper noted that Colombia and Chile are now drafting similar laws and are expected to enforce regulations for their fintech sector very shortly. In 2019, Colombia received the region’s second-highest fintech investment, pushing Mexico to the third position.

However, when it comes to the number of fintech startups, Mexico is far ahead of Colombia. Mexico was in fact the first to introduce a law to regulate the financial technology sector, which paved the way for open banking.

Talks about open banking

Brazil has also rolled out regulations for introducing open banking, but the legal process is still in its infancy. Most of the other countries in the region are not talking about open banking at all.

In 2019, Colombia received the region’s second-highest fintech investment, pushing Mexico to the third position. However, when it comes to the number of fintech startups, Mexico is far ahead of Colombia.

Mexico was in fact the first to introduce a law to regulate the financial technology sector, which paved the way for open banking. Brazil has also rolled out regulations for introducing open banking, but the legal process is still in its infancy.

Most of the other countries in the region are not talking about open banking at all. The research paper evaluated the prospects for fintech by exploring the institutional framework to supervise and regulate it showing that fintech regulation in the region takes an activity-based approach rather than an entity-based one, except in Mexico.

Challenges facing fintech

The paper presented the challenges that fintech faces in becoming a game changer for the region concluding that, “fintech can be a strong catalyst to improve financial and social conditions in Latin America by incorporating the unbanked into the financial system and providing alternative sources of finance to firms. “ The analysis for the research was based on three sources of information.

First, answers to a questionnaire sent to central banks in the Americas, second the use information gathered in interviews with fintech representatives in the region from both the industry and the regulatory side and finally the researchers complemented and substantiated their analysis with industry data. The researchers say, “our paper is the first regional analysis that uses these three integral sources of data”.