Why Is It Particularly Interesting to Talk About Open Banking in Peru?
Open Banking is advancing quickly, albeit unevenly, throughout Latin America. For example, Brazil is the only country that has adopted Open Banking legislation (in 2019) with implementations well underway. Peru, as well other countries in the region (Mexico, Argentina, Colombia) have considered embracing a specific framework that would formally regulate Open Banking, but to date have failed to do so. However, regulations in Peru are expected soon and they could have a transformational impact on the customer experience.
What is particularly interesting is that Peruvian financial institutions (FI) are already sharing customer data and have been doing so for some time. This is highly uncommon in the region today. Every month Peruvian FIs send customer information to the central bank to create a profile. This could be considered to be an advantageous head start if we compare this against other Latin American countries. There is however a very important variable missing in this equation: the customer consent that would allow certain financial institutions access to the information. Millions of Peruvians are already using multiple different financial applications throughout the country and they would like to have a more secure way to decide the terms under which a financial institution shares customer information with third party institutions.
To understand the impact that Open Banking could have on the Peruvian market, it is important to understand the particularities of the local economy. Latin America is a region where the informal economy is king due to different factors such as heavy tax burdens on corporations and individuals, as well as minimum wage constraints. The importance of agriculture in the local economy also plays a big role because informal employment tends to be much higher in that sector. As a consequence, over 30 percent of the Latin American population is unbanked.
Open Banking could very much be the catalyst of the region’s increase in innovation and financial inclusion that has up to this point, primarily been driven by fintech startups like digital challenger banks and mobile payment service providers. These startups arose to serve Latin America’s substantial unbanked population, and their entry into the market was smoothed by the same legislation that drove Open Banking forward. Investors have taken notice; their funding more than doubled between 2018 and 2019 and continues to rise.
Moving Ahead of the Pack
Regulations have evolved in tandem with Open Banking developments to reduce risk and protect against fraud around the world. The financial industry, however, stands at an inflection point. As offerings expand and consumers demand more customization, choice and control, the companies that win will be those that go beyond regulations to align with customer needs. Those that view Open Banking solely as a technology play will be vulnerable to disruption.
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