Brazil

Most Brazilians use smartphones when accessing the internet. WhatsApp is a highly prevalent tool for communicating for both consumers and businesses. Launched in Nov 2020, the mobile to mobile payment system, Pix, has also driven smartphone adoption and is rapidly replacing cash and cards.  Brazil is a large market with 212 million citizens, 160 million of which are over 18 years of age. There are more than 150 million online accessible bank accounts for Open Banking.. 79% of Brazilians view a growing movement toward Open Banking as a positive development. 75% of Brazilians said it was worth giving companies access to their personal data if it meant a better user experience for them. 90% of Brazilians agree that they should have control of their own financial data, and banks should not prevent the movement of their money between other financial services.

Brazil is a global leader in the development of financial sector policy, data privacy law and Digital Public Infrastructure (DPI).

After years of rampant inflation, peaking at nearly 5000%, economic reforms guided by the Real Plan introduced a new currency, the Brazilian Real (BRL) in 1994. Along with further reforms the economy was stabilised and the Brazilian Central Bank (BCB) was given independence to manage inflation underpinning a period of steady economic growth. Whilst inflation has periodically accelerated, the overall trend has been low and steady. 

4 days after the General Data Protection Regulations (GDPR) came into force in the European Union, the Brazilian Federal Senate passed their equivalent, known as LGPD which unified the various preceding laws and has harmonised the regulation for processing personal data. This law came into force in August 2020 and is administered by the Data Protection National Authority (DPNA). LGPD is a foundation stone for the development of a much wider Open Finance and Open Data policy, which is combining to drive digitisation and growth in the Brazilian economy. 

Watching the unfolding delivery of PSD2 in the EU, from 2018 the BCB has engaged in a variety of technical visits to the UK to learn about the delivery of Open Banking and all the challenges which were faced. Unlike other countries in the EU, the UK chose prescriptive specifications and conformance standardisation in the delivery of robust APIs. Brazil took forward the learnings to utilise the standards approach but discovered that for Open Finance to be successful, it needed to go beyond the narrower access to just payments data prescribed by PSD2.

Beyond the technical parts, the BCB also studied the security, user experience, governance and funding models from the UK. Making some modifications to the UK design, the BCB tailored the approach to the Brazilian market.

In 2013, the BCB became the retail payments regulator. The BCB produced a report on payments describing a faster payment system and by 2018, had described the technical requirements to implement it. In 2020, the Pix regulation was issued and Pix was launched in November of that year. It has become a cornerstone of a digital revolution in Brazil providing an instant method of payment between businesses, consumers and businesses and between consumers.  

The core Pix platform is run by the BCB itself. Payment beneficiaries have immediate availability of funds. The user experience is frictionless and provides high levels of convenience to users. It has round the clock availability. It is an open environment enabling a broad range of payment service providers to participate, driving competition. At launch, there were no fees for people and low cost for businesses. Both funds and data about the payment are transferred through the messaging in the platform, enhancing the automation of reconciliation.

The BCB mandated that all payment service providers with more than 500k customer accounts joined the Pix system. This compelled nearly all the large banks to participate. The combination of this compulsion, coupled to the low cost and easy UX delivered through mobile phones, has seen an astonishing level of uptake. By April 2022, Pix was delivering 1.67bn transactions per month and had been adopted by 68% of the population. At the same time, the banks were reporting the requirement to put less than 50% of cash in ATMs from the year before. Since April 2022, the use of cash has continued to decline. PIX is incrementally replacing credit and debit card transactions as adoption continues to accelerate. 

By the beginning of 2020, the BCB had finalised their development of rules, governance and funding approach to deliver Open Finance. 

The governance structure of Open Banking Brazil particularly boosted the participation of the Fintech sector in the implementation. It comprises three levels: Deliberative Council, Secretariat, and Technical Group.

A Deliberative Council (sometimes referred to as the ‘Board’) composed of six representatives from financial associations and one independent councillor, oversees the implementation of Open Banking Brazil. This Council consists of representatives from banks, credit unions, and financial and payment institutions, and receives proposals from different working groups formed of members from all associations and the Brazilian Central Bank. This ensures that the Brazilian Central Bank has considered a variety of viewpoints before all proposals are submitted for regulatory approval. They approve budgets, dialogue with regulators, determine guidelines for the Secretariat and for the Technical Groups, and also provide guidance on the other issues that arise during the process.

Each Board member has the role of defending the interests of its members, in addition to reinforcing the benefits of Open Banking for society, especially with regard to the advantages of a more competitive, accessible and innovative credit market.

• 1.1: Brazilian Federation of Banks (Febraban)
• 1.2: Brazilian Association of Banks (ABBC)
• 1.3: Organization of Brazilian Cooperatives (OCB)
• 2.1: Brazilian Association of Credit Card Companies and Services (Abecs)
• 2.2: Brazilian Association of Payment Institutions (Abipag), Brazilian Internet Association (Abranet), and Brazilian Chamber of Electronic Commerce (Câmara-e.net)
• 2.3: Brazilian Association of Digital Credit (ABCD) and Brazilian Association of Fintechs (ABFintechs)
• Independent advisor

The Secretariat group aims to organise the work plans and technical proposals presented by the Technical Groups. It is also responsible for managing the budget of the Governance Structure and coordinating all administrative activities, assisting the Technical Groups with demands, and transmitting the status of implementations to the Deliberative Council. Its members are chosen by the Deliberative Council.

The Technical Groups develop studies, technical proposals, and work plans aimed at the implementation and management of Open Banking in the country, always guided by the guidelines approved by the Deliberative Council. Its composition may also include professionals from entities that are not part of the financial world, such as technology companies and academics. Initially there were nine Technical Groups working on the implementation of Open Banking Brasil. 

By August 2020, the Board was finalised and the process of funding the implementation was orchestrated on a proportional basis to the scale of the size of the market participants. In the first wave, that included all the large banks who were compelled to deliver API access via Open Banking. An independent consultancy was appointed by the Board to run the implementation as the Secretariat, and coordinate the ecosystem.    

The API security design based on the Financial Grade API (FAPI) standard was selected, aligning with the choice made in the UK. The BCB also utilised the same vendor used in the UK for the development of the trust framework, through which permitted actors are identified and allowed to create an API connection between them.   

Open Banking Brazil was designed to be delivered in 4 stages, the first of which was launched in February 2021, and the last was supposed to be implemented in December 2021. It is based on three fundamental pillars: regulation, standardisation and collaboration. 

Although built on the same principles and technology approach as the UK’s Open Banking ecosystem, the accreditation flow for Open Banking in Brazil differs due to the presence of national IDs (“CPF” for Natural Persons, “CNPJ” for Legal Entities), and the ability to use them electronically. This simplifies the validation processes significantly compared with the UK model, and hence Open Banking in Brazil can be operated more autonomously without additional manual accreditation by a regulator. 

The implementation of Open Finance in Brazil, even whilst borrowing from the UK experience, had extremely tight time times, and required some resets through the process. Both the fintechs and the banks struggled with the rapid rotation speed of new specifications. Beyond that, the accreditation process for fintechs wishing to participate as payment initiators of data recipients, did not keep pace with the implementation. As a result, firms that were technically prepared were not able to access the market, which led to some frustrations. 

Avoiding the complex jargon of PSD2, the BCB simplified the rule making to describe the Data Donor Institutions (DDIs) and Data Recipient Institutions (DRIs) as well as outlining the role of Payment Initiators as Third PartyProviders (TPPs). Open Banking Brazil offers free access to customer data, transactions and payment initiation services, and TPPs have to share their data as well if they are using bank APIs, as data reciprocity ensures that there is no information asymmetry between the stakeholders.

Open Banking Payments, whereby a TPP initiates a transaction on behalf of the customer at an account held with another institution is run over the Pix rails benefiting from both the instant payments, and some of the risk controls to protect customers paying with Pix. After a slow start, due to some implementation delays in the Open Finance technology, there are now many firms operating as Payment Initiators and the sector is growing.

Many of the large banks that are regulated primarily by the BCB, also offer various types of insurance products. The BCB’s Open Finance regulations were also applied to insurance enabling a DRI to require a DDI to share data with the customer’s explicit consent. Due to some customer overlap, as well as the development of Treasury policy, the Brazilian insurance regulator SUSEP drafted an equivalent regulation of the BCBs Open Finance rulemaking, bringing into scope not only the large financial institutions, but also the brokers of insurance and pension products.  

SUSEP followed the BCB model, and appointed an independent consulting firm to run the delivery, as well as setting up a similar governance and funding model, and using the same security methods and providers to orchestrate the delivery. The alignment and conformance between Open Finance functions sets a global benchmark for best practice, in terms of eliminating unnecessary overhead. 

In July 2024, the BCB made a number of significant announcements concerning the future of Open Finance in Brazil. The original governance and funding model has been updated with the trade association representing the large banks (Febraban) being given a second seat at the same time as new associations representing neo-banks (Zetta) and Payment Initiators (INIT) have been added to the board. The proportion of costs that each party is paid to fund the delivery has also been updated to reflect the new situation.

Also in July 2024, the BCB announced that it wants banks to start using Open Finance structures and technologies to offer customers the portability of credit between financial institutions. The aim is for this to have been implemented by the second half of 2025 and addresses high levels of stickiness and high levels of friction for customers who may benefit from moving between institutions in the search for lower interest rates, driving more efficient competition. As with all regulatory intervention in the domain of Open Finance, there are competitive tensions between large incumbents and fintechs. 

One of the main points of divergence, is the Operating Cost Reimbursement (RCO) which is a compensation that the receiving lender pays to the originating lender.  Given that banks primarily make money from lending operations, the rule setting for credit transfer is likely to be contentious, but is clearly a game changer in the domain of Open Finance and how it may drive competition, value, convenience and inclusion.  

The Brazilian securities regulators (CVM) has conducted a market study on aligning with their fellow regulators in creating the idea of Open Capital Markets with the intention of creating easier portability of information of funds performance and the movement of investment capital between funds broadly emulating the idea from the BCB on credit portability. 

Brazil has an interoperable instant payments platform, PIX, which is available at any time of the day – including weekends and holidays. PIX is a new payment method in Brazil for instant direct bank transfers, which is built and owned by the Central Bank and operated by the Brazilian banks, digital accounts, and wallets. The account-holding institutions must carry out financial transactions by instant payments initiated from other regulated institutions upon the customer’s request.  

Furthermore, Open Banking Brazil has adopted Financial-grade API (FAPI) and FAPI Certification to ensure FAPI technical conformance needed to meet compliance requirements, which goes a long way toward the interoperability Open Banking relies upon.

The model for retail payments adopted in Brazil is a market-wide approach requiring that most payment service providers (PSPs) seamlessly transfer retail payments among themselves.

According to The Global Findex Database, 84% of Brazilians had bank accounts in 2021, leaving 16% unbanked.

Fintechs in Emerging Markets and Developing Economies (EMDEs) have started to provide services based on consumer data analysis that could improve the financial resilience of low-income populations. This has been seen to actualise in services, for instance, by reducing reliance on overdrafts and other excessively priced credit products. For example, Brazilians can receive service alerts of overdrafts (p. 11) so they can access a prequalified 30-day interest-free loan on balance and benefit from a reduced interest rate thereafter.

The main drivers for Open Finance, according to the BCB, are financial inclusion, bringing innovation to the financial system, promoting competition, and improving the offer of financial products and services for the consumer.

At the same time, the innovative and progressive work of Brazilian regulators has encouraged the mobilisation of capital, with a now thriving fintech scene and significant venture capital and private equity inflows driving growth, as well as M&A activity.

It is compulsory for large and medium-sized Brazilian banks to participate in Brazil’s Open Banking initiative. Brazil launched PIX (p. 18), which is a creation of the Brazilian Central Bank. It allows consumers and companies to make money transfers 24 hours a day, seven days a week, without debit or credit cards, with no fees.

In Brazil, banks and Fintechs must achieve accreditation for each functionality they wish to either expose as APIs (predominantly for banks) or to consume as third parties (predominantly for Fintech platforms). Open Banking Brazil offers free access to customer data, transactions and payment initiation services, and TPPs have to share their data as well if they are using bank APIs, as data reciprocity ensures that there is no info asymmetry between the stakeholders.

During the second phase of the implementation of Open Banking Brazil, new products and services have moved from using screen scraping to Open Banking APIs. API platforms surged 147% to 47 in Latin America (p.12), mostly attributable to participant banks in Brazil continuing to roll out new API platforms under the new regulatory framework and corresponding to new Open Banking standards. According to Belvo, 689 Fintechs operated in Brazil in 2020 (p. 13).

The Brazilian innovation ecosystem saw record investments in 2021, and an increase in the offer of jobs, but the skill shortage has slowed down the expansion of many startups in the Fintech sector. According to ManPower, 71% of Brazilian employers are facing difficulty filling jobs. 

Brazil ranked 96th out of 134 countries in Wiley’s Digital Skills Global Index 2021.

Open Banking Brazil offers detailed guidance for consumers and businesses to get involved in Open Banking. The guides include information about privacy and security, implementation process, participation models, onboarding, registration and development resources.

Brazil requires the industry to determine data-sharing standards (p. 21). However, the regulator oversees delegation and must approve the final standards.