2022 is the year of open banking! What is it and how will it change our lives?

In December last year, the Central Bank began the fourth and final phase of implementing open banking, also known as the open financial system. As implementation is gradual, this stage will still take a few months to complete.

Throughout this period, banks and financial institutions registered with the Central Bank share information with each other about investment, pension, insurance and foreign exchange products, among others. It is important to note that this sharing of information only takes place with the client's authorization.

At the end of this phase, the expectation is that consumers will find new solutions for offering and contracting financial products and services that are more integrated, personalized and accessible. 

But before we assess the impact of implementing open banking on our daily lives, let's get a better understanding of what the open financial system is.

What is open banking?

Open banking, also known as open finance, is the possibility for bank customers to share their information between different financial institutions and to operate their bank accounts from different platforms and not just through the bank's app or website.

Currently, banks don't share customer information with each other. If you have two accounts - one with a traditional bank and one with a digital bank - the former knows your income because that's where you receive your salary and how much is left over at the end of the month after all your expenses.

The digital bank, on the other hand, knows how you spend your money because it has access to your credit card history, but it doesn't know how much you earn. In other words, at the moment, one institution doesn't "see" the customer relationship with another, so it has difficulty competing for it with better services. 

Open banking is here to change that because customers can take their entire financial history - deposited salaries, loans, installments, their spending profile - wherever they want, without having to start a relationship with another financial institution from scratch.

Currently, this financial information is stored at your institution and you can't take it to another bank. 

What will open banking make possible?

With open banking, financial institutions connect directly to the platforms of other institutions (banks, fintechs, insurance companies, etc.) and access customer data. 

Here's an example of what's happening today:

If the digital bank doesn't know you that well, it could prevent you from increasing your credit card limit. Open banking will break down these barriers, because if the digital bank receives your authorization, it will be able to access your data at the traditional bank and get to know you better and, if it has the requirements, increase your card limit.

The expectation is that open banking will encourage a more transparent flow of information between banks, which will be able to better define credit policies and service offerings, which will be more appropriate and segmented according to the customer's profile. In short: banks will get to know their customers better.

Again: the user must authorize what information can be accessed. The Central Bank guarantees that the entire process will be carried out in a secure environment and that the user can cancel the permission whenever they want.

Innovation should also enable the emergence of new business models that are easier to access, more agile and safer, which should favor the inclusion of the population in the banking system and financial education.

Benefits of open banking

1. Freedom to contract services and products: Today it is complicated to share information between banks, but with open banking it will become easier to have an account with a bank, a credit card with a fintech and investments with a broker, in an agile and secure way.
2. Lower rates and fees: By having access to user data, financial institutions will be able to offer products and services to their competitors' customers.
3. Information control: open banking will simplify our financial lives. If, for example, you have more than one bank account or an account with one bank and a loan with another, you will be able to see all your information in one place.
4. Just one platform: Similar to what already happens with PIX, users will have access to one platform or application from where they can manage all their financial products.

The precautions that open banking requires

Despite the benefits, the implementation of open banking requires users to be cautious when sharing data between financial institutions. The Central Bank has determined that data "may only be used for the purpose determined at the time of consent". The purpose must be made clear to the customer and banks must stick to that purpose.

As the number of entities and people with access to your financial data increases, there is a real risk of information leaks, scams and fraud. It's too early to say what these scams and frauds will be, but we need to be extra careful. The Central Bank guarantees that it will monitor institutions and punish the misuse of data.

Finally, while on the one hand competition between institutions to offer products and services at a lower price will increase, on the other, consumers run the risk of receiving a flood of offers and being targeted by companies.

For this reason, the Central Bank has set up a complaint channel in the event of misuse of data by financial institutions. You can access it by clicking here.