Home
/ Insights
/ Articles
/ Latin America, a Fertile Ground for the Development of Open Data

Latin America, a Fertile Ground for the Development of Open Data

Open data public policies are advancing globally. Both traditional and disruptive financial sectors are capitalizing on these technological and data-sharing innovations to expand their products and services more agilely, securely, and efficiently, while users gain greater control over their information.

Latin America’s growing demand for inclusive financial solutions is intricately linked to the need for rapid technological advancements.¹ This has created a favorable environment for a more effective financial ecosystem. Central to this development is the empowerment of users through greater control over their data and enhanced consent mechanisms. However, despite these positive trends, the financial sector, primarily driven by the fast-evolving fintech industry, is outpacing the traditionally rigid regulatory frameworks. The resulting gaps present challenges for both the regulators and the regulated entities.

While financial digitalization is pushing companies to adapt to new access channels and data interpretation, significant disparities exist among Latin American countries.² Brazil and Mexico stand out as leaders in implementing open finance regulatory frameworks,³ laying the groundwork for financial interconnection services, meanwhile, Chile, Colombia, and Ecuador, are progressing in establishing minimum rules for open finance, beyond public or private banking institutions.⁴

Given the slow progress in closing the gaps between countries, the region’s main challenge is to promote common regulations, which foster standardization and harmonization. While Colombia, Mexico, Peru, and Chile are advancing in this area, they are still far from achieving the results seen in the European Union. Payment solutions, regtech, banking, and alternative financing, could be integrated into the financial ecosystem in a more predictable and organized way, reducing risk and clarifying their value offer.

Challenges of Implementing an Open Data Framework

The implementation of an open data regulatory framework faces significant challenges⁶ related to information sovereignty. The schemes designed to protect personal and sensitive information often conflict with open data laws that seek transparency and free access to information. The constant updating and the diversity of the legal frameworks, both nationally and internationally,⁷ complicate the harmonization of global policies and practices. This legislative disparity can create gaps and vulnerabilities that compromise the security and privacy of open data.

New credit offerings are transforming the lending industry and other financial services, by generating new paradigms in financial inclusion and risk assessment. The inclusion of unconventional data such as social media activity or non-traditional payment records, is modifying the range of financial services and associated risk models. While these innovative approaches enhance accessibility and promote more effective financial inclusion,⁷ they also raise questions about the fairness and accuracy of algorithms, as well as the ability of financial institutions to effectively manage these new risks. In addition, the role of governments in managing these data for more efficient public policies becomes a significant factor.⁸

Regulators are expected to be impartial, but they often find themselves competing with the privileged information held by traditional banks, given government mandates to strengthen public-origin financial services. Additionally, the standardization of security measures imposes stricter obligations, creating tensions between fintech companies and the traditional financial industry.⁹ These demands for transparency and equal regulatory requirements can be challenging for fintech companies, which typically have fewer resources and less political influence than established financial institutions. This highlights the need for a balanced regulatory framework, which fosters innovation while ensuring financial security and stability.

Competition in an Open Information Context

In the context of open data, one of the main objectives is to promote fair competition. This not only boosts productivity and consumer well-being but also aims to level the playing field for all participants in the financial market.¹⁰ However, while the open data regulatory framework encourages banking competition by reducing information asymmetries, challenges remain within the governing system.

A key challenge lies in the emerging role of States within this new framework. Governments must define data governance and actively compete in the financial sector. Developing cross-sectoral policies to guide competition around privileged information is crucial for the effective positioning of open data.

The advancement of regional regulations on open data reflects a growing understanding of competition in this context. For example, the standardized exchange of data, presents a significant challenge in addressing the regulatory differences between traditional and non-traditional financial players,¹¹ as the need to enforce transparency requirements for all participants. Standardizing formats for both regulated and non-regulated entities is crucial for successfully implementing this new data model and generating better services within a framework of fair competition.

Keys to Proactive Adaptation

Advances in economic digitalization are driving companies to adapt and collaborate closely with authorities to regulate key aspects such as data usage promoting credit, processing payment transactions, and developing technological infrastructure. However, a crucial point of convergence in this process is the role of consumers and the need to offer solutions that genuinely meet their needs and protect them, especially in a context where vulnerable populations still face barriers to accessing the financial system.

In this regard, promoting public agendas for financial inclusion becomes a shared challenge and common goal for businesses and governments of the region. Companies in the sector have experience empowering and educating consumers, an area where governments are also working since their influence on data control grows, which can impact regulations on privileged information. There are numerous opportunities to build data models around consumer empowerment.

As progress is made toward more comprehensive regulation in areas where open data can transform financial products and services, value-driven interactions among all actors, both traditional and new, in the data ecosystem will be essential. This will enable holistic development that supports rapid advances in the digital economy, ensuring it is secure, accessible, transparent, and innovative.

Footnotes:

1: Hai, Ling, “Lessons from Latin America’s Drive to Enhance Financial and Digital Inclusion”, World Economic Forum (August 23, 2023).

2: Diego Herrera, Walter Pereira, Ludmila Volochen, Ana María Zárate, “Open Finance in Latin America and the Caribbean. Great Opportunities, Large Challenges”, IDB (2023).

3: Ozone Api, “The Status of Open Finance in Latin America”, (March 22, 2023).

4: Ibidem

5: European Commission, “Framework for financial data access”, European Union (2023).

6: Idem

7: Liliana Rojas Suárez, “Financial Inclusion in Latin America. Facts, Obstacles, and Central Banks Policy Issues” IDB (2016).

8: Idem

9: Ibidem

10: Development Bank of Latin America and the Caribbean, “Financial inclusion in Latin America: How far have we come?” CAF (December 2, 2022).

11: Deloitte, “The future of fintechs: risk and regulatory compliance”.