This month, Open Finance turned three years in Brazil, witnessing significant investments from banks and fintechs to innovate products while users gradually embrace its potential. In the face of the immediate triumph of Pix, the central bank’s instant payment tool introduced in late 2020, Open Finance appears to be still gaining momentum. However, behind the scenes, this system that aims to revolutionize financial services in Brazil is making steady progress.

The system now boasts over 42 million consents, according to official data, of which 28 million are unique to an individual or a company. The total number of weekly API calls – Open Finance is based on interactions and data transmission between different APIs – reached 1.5 billion by mid-January, tripling from 0.5 billion about a year before. The local banking association, Febraban, said this makes Open Finance in Brazil the largest in the world.

Not as popular as Pix… for a reason

Open Finance, also known as Open Banking, enables customers to share their financial information among authorized institutions. Each account holder grants permission for banks and fintechs to access specific data held in another provider, with connections established directly between them at the consent of the customer, who can revoke it at any time. Experts argue it has a huge potential to significantly improve the quality of financial services and lower costs for the user.

Still, for day-to-day Brazilians, this is largely unknown. Open Finance was introduced barely a few months after its big brother Pix, yet it is nowhere near its explosive adoption. Pix has quickly established itself as a payment method of choice for the entire Brazilian population.

But experts argue there is a reason for this. Unlike Pix, which is a readily available, extremely useful, and practical service, Open Finance is an infrastructure. It enables the development of services through client connection and information sharing but on a back end. “Open Finance will never be as popular as Pix,” said Carlos Augusto de Oliveira, executive director at ABFintechs in Brazil. “Like any infrastructure, the client may not always realize that he or she is actually benefiting from it.”

The fintech advisor says it depends on further construction and development of new services for its benefits to become tangible for the client so as to provide consent.

A turning point for Open Finance in Brazil?

Indeed, the infrastructure is still in its early stages, and it could take a few years for participants to develop new products. In addition, users say the experience is still far from ideal, and that few functionalities are available today to validate the tool’s usefulness.

However, experts believe this may change in 2024 with the arrival of new products and, mainly, with the integration with its older sibling, Pix.

“2024 is expected to be a year of significant growth for Open Finance, especially due to its combination with Pix,” said Oliveira. Pix is by any account now a payment behemoth in Brazil, moving around $400 billion per month in transactions. The central bank is constantly releasing enhancements and new features, and Pix Automatico – which resembles a direct debit in recurring payments – could really propel forward its use this year, and highlight the benefits of Open Finance.

“Some estimates point that by the end of this year, about one-fifth of all Pix transactions will be carried out through this modality, which is made possible due to the integration framework of Open Finance,” said Oliveira.

For Pablo Viguera, a co-founder and CEO at Open Finance firm Belvo, Pix-related products will be critical to propel Open Finance forward. “This shift can make financial services not only more accessible but also tailored to each customer’s unique requirements,” he told Fintech Nexus. “This evolution could be a significant milestone, similar to the transformative impact Pix had on the payment landscape.”

Open Finance is key to increasing credit

Above all, Open Finance can play a critical role in driving the cost of lending down in a country infamous for above-normal net interest margins where rates can easily go into the triple-digits in the unsecured segments.

 “Open finance will become a competitive advantage in 2024,” Viguera said. “In the face of a complex macroeconomic environment in the region, where access to credit can be challenging, lenders need to find new ways to improve their risk assessment processes and decision-making.”

Belvo believes 2024 will see the consolidation of new practices that leverage transactional data extracted through open finance to measure credit risk, complementing and even replacing traditional methods in some cases. The company has partnered with FICO in Brazil to develop a new credit score which is based on data gleaned using Open Finance frameworks.

“This is an example of how combining AI with transactional data can be a win-win for financial institutions and customers,” he said to Fintech Nexus. “It will drive unprecedented innovation in the Brazilian financial sector.”