In a landmark development, fintech associations from Mexico, Colombia, Peru, and Chile made a significant stride last week by publishing a document proposing joint standards for Open Finance.
This could potentially serve as a first move for fostering comprehensive regulatory bodies across Latin America, setting the stage for enhanced cross-border transactions and implementation. Each association is now established to present this proposition to its respective regulators.
“We managed to build an interoperability standard for Open Finance,” Ernesto Calero, director of Fintech Mexico, said.
“The objective is to make key information available to regulators to establish a common standard in these countries and develop a competitive fintech ecosystem.”
Open Finance establishes rules for exchanging financial information among fintechs, banks, and other financial market participants. It is expected to reduce information asymmetries and promote competition in the industry. The overarching goal is to lower costs for end-users.
Unprecedented effort
This collaborative effort marks a milestone for Latin America. While regulatory advancements have been swift in many countries in recent years, each has operated on its own framework.
Brazil has been at the forefront, with several traditional and fintech institutions already sharing data.
Chile has made significant progress with its recent fintech law, while Colombia is actively exploring the concept.
Mexico, in turn, has already enacted fintech legislation, albeit with limited adoption of Open Finance thus far.
“Regulatory advances are a very positive incentive to accelerate innovation in the sector, and it has generated great momentum in recent years in many countries,” Pablo Viguera, co-founder at Open Banking fintech Belvo, told Fintech Nexus.
“In Latin America, it opens the door to further progress on financial inclusion, with a great potential to extend the reach of financial services to a greater percentage of the population.”
Numerous fintech companies have made notable expansions across Latin America in recent years. In a region brimming with 2,500 startups, it has become customary for a fintech to venture into neighboring countries.
Except for Mexico and Brazil, adopting a regional perspective becomes almost obligatory for startups in other smaller-sized economies in the region.
Open finance LatAm: why it matters
The absence of unified regulations poses a significant challenge for such fintech companies. Varying regulatory landscapes across different countries requires in-depth studies of licensed frameworks in each jurisdiction. This results in delays and economic burdens.
“Regulatory limitations to operate cross-border have forced fintech companies to assume huge costs to operate in more than one jurisdiction, or simply give up on that dream of growing beyond their country of origin,” said Gabriel Santos García, who oversees the Colombian fintech association. He emphasizes that fintechs must view themselves as regional entities, enabling their clients to engage in cross-border services.
Even within Latin America, international payments often encounter multiple constraints and are frequently costly. In thinking regionally, companies would no longer focus on a market of 20 to 50 million people but instead, one encompassing over 200 million.
“Now, we must persuade our governments to adopt these standards,” Santos García said.
Colombia makes strides toward open finance
Colombia is one of the latest countries moving toward fintech regulation and, in particular, a framework for data sharing. The new government has incorporated this year Open Finance as part of its so-called National Development Plan. It is a multi-year legal roadmap for the next four years.
“Open finance in Colombia that is finally going to be a reality for Colombians,” Santos García told Fintech Nexus. He underscored what he believes benefits citizens and the industry while acknowledging that failing to produce some regulation could risk the country being left out.
“The risk of lagging would be a reputational issue for Colombia, being the last to develop an open data ecosystem.”
