In a bid for relevance, banks across Latin America are betting on new business models to retain and grow their market share. This includes strategies to broaden services and benefits they can offer customers through open banking-style integrations.
Despite enjoying some of the highest profit margins in the world, the region’s lenders are studying the threats posed by fintech startups, big tech companies, and marketplaces. In response, they are working to increase the role they play in their clients’ lives.
Open banking refers to traditional financial institutions allowing third parties to access their clients’ data (with a green-light from the customer, of course). It could for example, allow a digital financial advisor to access a customer’s transaction history and make recommendations on better money management.
In Brazil, the region’s biggest economy, many banks are developing application programming interfaces (APIs) a central form of information sharing between institutions in an open banking system. Brazilian regulators are not pushing them into this, rather banks are seeking a first-mover advantage–and to learn by doing.
From the country’s biggest Banco do Brasil down to much smaller, digitally-focused banks like Banco Original, many see advantages in learning about the new technology.
“It will add channels and increase revenues, as it creates new business models and brings more clients,” Paulo Antônio, an IT director at Banco Original, says.
One of the biggest banks, Bradesco, launched a digital spin-off a year ago call Next. In designing an online-only bank, Bradesco aimed to link the lender with tech startups to create a central app for users, from which they could hail an Uber or book accommodation on AirBnB.
“We want Next to become the hub of people’s lives,” said CIO Mauricio Minas. “We want Next to be the first screen of everyone’s smartphones. We want people, when they want to do something, they can start with Next.”
Can I bring you dinner?
Open banking has come to global attention thanks to Europe’s second payments services directive, PSD2, which forces banks into an open banking era. But in most of Latin America, banks themselves are taking the first steps.
Mexico is a big exception. There the government passed a Fintech Law in March–which, among other aspects, mandates open banking. Still, the policy details are still being determined, and open banking requirements may take some time to come into force.
Still, in a bid to make themselves more useful to their clients, many banks see the importance of broadening their links with other companies, Citibanamex, for example, is talking to tech companies and startups about use of its APIs. Banregio is a smaller bank that is making a big bet on open banking. The Monterrey-based lender to small and medium-sized businesses is offering extra services–like legal advice– to its clients via API connections, and it’s not stopping there. The bank wants to take on services like UberEats, offering delivery services to its corporate clients.
“The price that I can offer is cheaper, because I have those clients already [through payment terminals in their businesses],” explains the banks CEO Manuel Rivero. “I’m not interested in becoming an Uber or a Rappi–I’m interested in having a deep relationship with the business, in being able to help them so that they will keep their checking, deposits, loans and terminal integrated with us.”
Whether the practice of banks bringing you dinner will take off remains to be seen. Open banking, however, seems set to stay in Latin America.