Why is it essential to learn about Open Finance?

May 26, 2022

Open finance is here to stay.

The rise gained by Open Finance throughout the world in the last couple of years has been quite impressive. To better understand the opportunities offered by this industry, the following series of articles will present a general overview on the subject. Here we will address the Open Finance world, taking also into account Open Banking, Open Fiscal and Open Crypto.

In simple terms, Open Finance is a data sharing model that allows financial institutions to share user transaction data with third parties such as Fintech or other financial institutions (with the users’ consent).

Open banking and Finance allow customers to authorize third parties to access certain personal information or perform certain operations on their behalf, typically through APIs (Application Programming Interfaces), a bridging software that allows two companies to securely communicate between them.

It has become increasingly relevant for consumers to understand these terms and their benefits, since Mexico was the second country in Latin America to regulate Open Finance, the first being Brazil. This has favored innovation and collaboration in the banking and financial sector.

What are the Benefits of Open Finance?

The benefits for clients are evident, as they gain access to better financial products and services which may accelerate their financial inclusion. However, to achieve this, it is essential to ensure a safe and appropriate use of data. Here are just some of Open Finance’s users’ benefits:

  • Design of tailored financial products, thanks to the fact that data exchange allows organizations to know the needs of their users.
  • Ease and flexibility of payment methods for customer transactions.
  • Track financial transactions more efficiently.
  • Control of finances with the use of budgeting and cost control applications.
  • Real-time service, with optimization of response times to any type of request from the client or user.

Through Open Finance, better consumer options   are created, as well as an ecosystem of new products and channels for customers who want to achieve a better relationship with banks and financial institutions.

Here is a simple example of Open Finance applied to banking: if a customer requests a bank loan, the bank has access to the customer’s information regarding other banks and financial institutions through an API, which speeds up the process while reducing any fraud risk for the bank. This way, we eliminate the friction involved in the processes The user becomes the center of the experience and it is he who benefits the most. This same principle of centralizing information can be used for banking purposes as well as for fiscal, governmental and monetary uses among others. In future deliveries we will address these cases.

Mexico in the Open Finance World

In this strongly mobilized post Covid-19 pandemic digital era, information has become one of our most valuable assets, making it essential to regulate who can use said information and how. That is why the Fintech Law was first created in Mexico.

This law contemplates:

  • Open Financial Data: Data generated by Entities that do not contain confidential information, such as information on the products and services offered to the general public; the location of their offices, branches, ATMs or any other access points to their products and services must be open access.
  • Transactional Data: Data related to the use of a given product or service, including deposit accounts, credits and disposition means contracted on behalf of the Entities’ clients, among other information related to the transactions that the clients have carried out or attempted to carry out in its technological infrastructure, can only be shared with the prior express authorization of said clients.
  • Aggregated Data: All data related to statistical information on operations by or through Entities will be accessible to those who have the authentication mechanisms provided by the Supervisory Commission or the Bank of Mexico.

Why Share my Financial Data?

The answer might not be obvious but it’s easy. The more information the banks or institutions in the ecosystem have, the more and better products they will be able to develop in order to meet the particular needs of the specific customer profiles. For example, some users prefer physical and direct contact with their bank while others rather perform their transactions electronically.

We are all different, we spend our money differently and we prefer certain services according to different factors. If the companies that develop financial products can learn these characteristics in detail, they will be able to develop highly useful and efficient products, while contributing to financial inclusion at the same time.

According to Mexican regulations, only authorized entities can access your information and they can only do so with your consent. For this reason, it is completely safe to share your financial information, since the proper technical and administrative mechanisms have been established to ensure that data transmission is regulated at all times.

The future is heading towards the consolidation of Open Finance and the growth of Fintech companies insomuch as we offer more innovative and personalized services. In just the last two years, the Fintech industry has positioned itself in Brazil, Uruguay, Argentina, Chile, Peru, Mexico and Colombia.

Syncfy has created a solution for every need in Latin America’s Open Finance world. Learn about our products and join a new generation of financial services.

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