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Chile looks set to become the fourth Latin American country to implement open banking after its Fintech Law passed the Senate with sweeping support.
Earlier this week (October 4), the Chilean Senate voted to pass the country’s Fintech Law, which includes a framework for open banking, as well as regulation of digital assets.
If it becomes law, the legislation will enable Chileans to give permission to third-party providers to access financial information, including data on bank accounts, credit and debit cards, loans, insurance policies, savings and investments.
Legislators would task the Financial Market Commission (CMF) with issuing rules that ensure the information shared does not include sensitive data.
Once law, Chile will become the fourth country to legislate open banking in Latin America, joining Brazil, Mexico and, most recently, Colombia.
Despite the absence of a legal framework dedicated to open banking, Chile has an active fintech sector that has grown significantly in recent years.
According to Finnovista, the number of fintech players grew by 60 percent from 112 in July 2019 to 179 by March 2021.
As of May 2021, the sector was led by the payments and remittance segment, which accounted for 23 percent of all fintech start-ups.
Fintech solutions have also proved to be an important tool to bring more Chileans into the financial system, as well as help digitise the economy.
According to the Finnovista research, more than two-thirds (68 percent) of fintechs offer business-to-business (B2B) services, largely to small and medium-sized enterprises that are either unbanked (71 percent) or underbanked (76 percent).
Looking at these numbers it comes as no surprise that legislators are now pushing for a legal framework for fintechs. Clear regulations could help firms scale better, which in turn could promote competition and increase financial inclusion, two of the main goals of the Fintech Law.
Focus on data protections
Debates in the Senate largely focused on ensuring the protection of consumers’ data, with some senators raising concerns that the law would enable the sharing of transaction history retroactively, up to five years.
Lawmakers felt that if businesses could see users' historical financial data, it could reveal sensitive information, such as memberships to organisations and payments-related information relating to the customer’s personal life.
Although the senators discussed an amendment seeking to reduce this time period to 180 days, they eventually rejected it because it could “annul the positive effects that the open finance system seeks to achieve”, one senator explained.
He stressed that the Fintech Law “is an important bill”, and the implementing regulations relating to data protection “will ensure that the level of [data protection] is the same as in Europe”.
The bill passed the Senate on Tuesday with the sweeping support of 39 senators and six abstentions. No senator voted against passing the bill.
The bill was passed by the Chamber of Deputies last November. It will now return to the lower chamber and become law if the plenary agrees to the Senate version.
Chile is one of the most attractive markets in the region, according to VIXIO analysis. It is the most economically developed market in Latin America and has a comparatively high usage of non-cash payment instruments. The regulatory environment is generally business-friendly with clear regulatory frameworks and a relatively low regulatory burden.
