What is open finance?

Open finance is a collaborative model in which various entities share consumer financial data through APIs, aiming to increase financial inclusion by offering products and services designed based on the shared information. Typically, participants in these environments include institutions such as banks, fintechs, insurance companies, and others that provide services in innovative ways compared to the traditional industry.

Services are offered through APIs, which are application programming interfaces consisting of rules, codes, specifications, protocols, or definitions that facilitate secure information exchange between different programs or systems. These are essential for the optimal functioning of the system.

The shared data is divided into four types:

    1. Open: Contains no confidential information.
    2. Aggregated: Represents statistical information.
    3. Transactional: Related to the use of products or services.
    4. Financial Services: These can include account openings, payment initiation, and loan disbursement, among others.

Open finance brings benefits to both entities and consumers. For entities, it can result in the optimization of user experience, acceleration of innovation, generation of efficiencies, flexibilities, and cost and resource reduction. For consumers, it allows control over their data and information, promotes financial inclusion and deepening, stimulates competition, and generates a better capacity to choose between different service providers.

Despite its benefits, open finance presents certain risks that must be considered for its implementation. There is human risk, referring to the possibility of data misuse by third parties, which implies financial crimes or incorrect, misleading, or incomplete advice. There is the operational risk, related to the control and management of complex data, which implies cybersecurity or fraud threats. Furthermore, there may be liability claims, as this tool involves more than one entity handling consumer information.

For this ecosystem to function properly, appropriate regulations are necessary. These regulations must provide protections around the access and use of consumer-owned data, as well as support innovation in a competitive, ethical, and compatible landscape. Some countries, such as Mexico, Brazil, and Colombia, have already adopted this financial model in practice and legislation. It will be interesting to follow the evolution of this financial model in the coming years and leverage technological advancements in these fields, which increase the opportunities for developing financial and related services for the benefit of consumers in our region.