As Brazil enters the last phase of its open banking initiative in the guise of open finance, the country’s central bank lays out an implementation plan for different products.
On December 15, Brazil launched the fourth phase of its open banking initiative that lays down the foundation of a data-sharing ecosystem that will evolve into an open finance network.
That day marked the date when the participating institutions had to start the functional certification process for the APIs of the products that will be shared. However, this final phase of the country's open banking implementation will unfold in four stages, which gives institutions some time to adapt to the new system.
In a recently published notice, the Central Bank of Brazil (BCB) said the new products will be added in the following timeline:
- Insurance, open supplementary pension and capitalisation by March 4, 2022.
- Accreditation services in payment arrangements by March 11, 2022.
- Exchange operations by March 18, 2022.
- Term deposit accounts and other products of an investment nature by March 25, 2022.
The road to open banking
The central bank announced the open banking project in April 2019 as part of a broader plan to modernise the country's financial system. It was planned to be rolled out in four phases by the second half of 2020, but the coronavirus pandemic has caused delays in the launch of the phases.
The third phase kicked off in late October, enabling payment initiation service providers to share information and bring in new solutions for making payments on PIX, the country’s instant payments service.
This third stage was also rolled out in four parts to allow market participants to adapt their systems to the new system. The first part enabled payments via PIX, while the other methods, such as interbank payments, payments via "bank slip" and payment by debit accounts, will be introduced in 2022.
Since its launch in November 2020, PIX has proved to be a great success story and is already one of the largest instant payments systems in the world.
Brazilians registered 348.1m keys on PIX to carry out 7bn transactions worth BRL4.1trn (roughly US$722bn) during its first year.
“What’s happened in Brazil is groundbreaking,” said Ralph Bragg, founder and chief technology officer of Raidiam, the UK-based fintech that provides a managed service for the core directory, conformance suite, reference bank, reference TPP and trust framework technology for Brazil’s open banking service.
“It is the fastest ever implementation of open banking anywhere in the world, and the quickest to extend from account information to payments functionality in a completely coherent way,” he added.
Just one year after starting the project, open banking has more than 850 participants, and PIX already has more than 100, Bragg explained. Within the next year, this will expand both in terms of numbers, as well as extend to an open finance ecosystem that includes other sectors such as insurance, pensions and investments.
The great success of PIX has been in part driven by the fact that Brazil could rely and build on the experience and insights gained from other markets such as the UK, according to Bragg.
It could look at the approach, standards and technology that already worked well in the UK, and focus on how to tailor the implementation to the needs of the South American country.
Moving towards open finance is a huge step, but the regulatory appetite and push are definitely there.
“We can say with certainty that Brazil already has all the right ingredients in place to move swiftly on to open finance. It has the key enablers including the right foundational standards, central infrastructure and services,” Bragg said.
“It will be very exciting to see how this innovation plays out in Brazil, in many ways, they are forging into the unknown and many other countries will be watching with close interest.”