WASHINGTON, CMC – A new study by the Inter-American Development Bank (IDB) and the Financial Data and Technology Association (FDATA) has found that open finance can contribute to increasing financial inclusion in Latin America and the Caribbean (LAC).
It said that this could be achieved through the consented use of financial consumer data to offer specific financial products and services, adding that the financial service industry and authorities should improve regulation and build institutional capacity to reap the benefits from the concept.
Available finance is a financial services ecosystem where consumers consciously consent to share their transactional data between financial institutions. This allows institutions to offer tailor-made services and products.
The potential benefits of available finance are increased competition, greater financial inclusion, and reduced consumer entry barriers.
According to the World Bank’s Global Findex 2021 Database, 27 percent of adults in Latin America and the Caribbean do not have access to financial services, and the share of adults borrowing from a financial institution is 30 percent, below the average for Organisation for Economic Co-operation and Development (OECD) member countries.
Moreover, according to the International Finance Corporation (IFC), the financing gap for the region’s micro, small, and medium-sized enterprises (MSMEs) is 35 percent of the regional gross domestic product.
In this context, available finance would help advance financial inclusion by reducing consumer entry barriers and promoting greater convenience and accessibility to tailor-made products and services, including digital payments, credit, investment, and insurance.
Open finance environments are still in the early stages in Latin America and the Caribbean, with only five countries in the region, none in the Caribbean, having or implementing regulations in this area, according to the study.
It said implementing public policies to promote open finance beyond these five countries remains an opportunity in the region. According to the study, four out of five regulators and supervisors expressed interest in having structured regulatory frameworks for available finance in their respective jurisdictions. Three out of five said they are interested in technical standardization for third-party providers (TPP) and application programming interfaces (API), among other technologies, for implementing available finance.
The report states that improving institutional capacity is critical to advancing open finance frameworks. This can be done by creating a regulatory and institutional framework, training human talent, and increasing technological capacity. Close coordination and dialogue between the private and public sectors, transparent communication among the actors involved, and financial literacy are also essential.
“Implementing an open finance ecosystem is complex and requires regulations and rules to operate for the benefit of financial consumers. Appropriate regulatory frameworks can contribute to organizing monetary authorities, creating public-private alliances for implementation, and handing power over data to financial consumers.
“We are confident that open finance will allow financial institutions to obtain better conditions for accessing and using financial products with security and efficiency,” said Susana Cordeiro Guerra, manager of the Institutions for Development Sector at the IDB.
The study also shows the financial sector’s perspective. Ninety percent of banking associations surveyed see available finance as an enabler of better personalization of financial products and more competition among economic players.
Entrants, such as open-finance-specialized fintech companies, offer various products, including connectivity layers for banks, data aggregation, or payment initiation.
“Appropriate regulation is critical for the delivery and healthy evolution of these new financial ecosystems that, by design, should improve the economic well-being of the end consumer and support innovation in an ethical and compliant competitive landscape.
“Empowering products and services that unleash the inherent benefits of open finance also need clear rules and guidelines that afford protections around access to, and use of, consumer-owned data,” said Richard Prior, the chief executive officer of FDATA Global.
The study provides an overview of the available finance industry on the global stage, public policy, and state-of-the-art solutions for this promising financial innovation.
The IDB said it can be used by industry, policymakers, academia, and the public in Latin America and the Caribbean for various purposes, from understanding the basics of the ecosystem to implementing policy recommendations.
and then  and the Financial Data and Technology Association (FDATA) has found){kind=link}