FDATA’s Open Thoughts

During 2023, open data regulations in Latin America have significantly evolved, with industry, governments, and financial regulators collaborating to establish a regulated data-sharing infrastructure.

Financial data sharing has been a reality in the financial system since its inception, adapting to a more digital and instantaneous reality as technology progressed. While some Latin American countries are still exploring opportunities and best practices in the open data ecosystem, others such as Brazil, Chile, Colombia, and Mexico have implemented regulated and some case mandatory data-sharing infrastructures. This aims to create a true network effect in the data economy, wherein major financial institutions, typically holding a significant portion of customer data, share this information with third parties.

The region has predominantly taken a mandatory approach for large institutions, and it is anticipated that in the coming years, countries still operating under a market-driven model will also engage in the implementation of regulated infrastructures.

Financial services is a hyper conservative industry, and a protectionist stance is common. No institution naturally wants to share customer data with a competitor, and data custodianship is often conflated to mean institutional data ownership.

The benefit of a mandatory approach is that it often enshrines a consumer data right, which clarifies the ownership vs. custodianship conundrum. Mandatory approaches also often consider consumer outcomes first and foremost, something that is not first priority when industry is left to voluntarily design delivery and outcome.

There is ample evidence to show that without a regulatory push, certain markets are reluctant to move towards a standard open data sharing scheme of their own volition. Even in voluntary markets, the regulatory pressure to deliver open banking is so strong it might as well be considered mandatory (it’s a case of “do it, or else we’ll do it for you”).

The advantage to a voluntary approach, though, is that incumbents recognise the incentive to participate, and often see economic and commercial value from participation; the ROI is there in some form, and the business case for broad data sharing is compelling enough to participate because the majority of FIs have a similar POV.

However, experience seems to prove that a mandatory approach is needed to accelerate open data sharing at scale.

In the evolving world of open banking and finance, the United States and Canada initially adopted similar voluntary approaches. FDATA North America has closely monitored this landscape, recognizing the importance of these nations’ transitions from voluntary to more mandatory frameworks.

In the United States, the shift towards a mandatory approach in open banking has been a significant development. Initially following a voluntary regime, the U.S. saw a notable change with the Consumer Financial Protection Bureau’s (CFPB) introduction of a proposed rule under Section 1033 of the Dodd-Frank Act. This proposed rule, aimed at enhancing consumer control over their financial data, signals a move towards a mandatory regulatory framework. This transition marks a major alignment with global financial technology trends and opens new opportunities for consumer benefits and innovation. Departing from the market-driven solutions that once dominated, this shift suggests a more competitive and innovative financial market, breaking away from the traditional dominance of large financial institutions.

Canada, following the U.S.’s lead, has also begun to shift away from its voluntary stance. This movement was highlighted by the Canadian Government’s Fall Economic Statement, which included a comprehensive framework for consumer-driven finance and open finance directives. This development indicates Canada’s progression towards a more structured, mandatory approach. This transition aligns Canada with other G-7 nations and reflects a global shift towards consumer-centric financial services, signifying a substantial change in the country’s approach to financial services regulation.

For FDATA North America, these developments in both the U.S. and Canada represent pivotal moments. The U.S.’s move towards a more defined regulatory framework under the CFPB is expected to lead to a more dynamic and competitive market, in line with global consumer data empowerment trends. In Canada, the enactment of consumer-driven finance will mark a significant step from a voluntary to a mandatory approach in open banking. As both countries refine their open finance strategies, the potential for transformative changes in consumer and business interactions with financial services is substantial. These shifts open exciting prospects for innovation, competition, and financial inclusion, reshaping the financial landscape in both countries.

Acknowledging the global context in which Open Finance operates, it’s important to understand the distinct roles of mandatory and voluntary approaches, particularly when contrasting Latin America’s experience with other regions. While the voluntary approach is more prevalent in other parts of the world, Latin America has been more inclined towards a mandatory framework, as highlighted in the report by FDATA LATAM in collaboration with the Inter-American Development Bank (IDB).

The mandatory approach in Latin America, as the report suggests, brings numerous advantages. It sets a clear regulatory framework, ensuring standardized practices across the financial sector. This is essential in a region with diverse economic and financial landscapes, as it provides a consistent and secure environment for data sharing. Mandatory regulations drive competition, lower barriers to entry for new players, and foster innovation, which is crucial for a dynamic financial ecosystem.

In comparison, the voluntary approach, predominant in other regions, allows for flexibility and market-driven innovation. Financial institutions and fintechs develop data-sharing practices organically, which can lead to highly tailored solutions. However, this approach may result in uneven adoption and standards, which can be challenging for ensuring universal access and consumer protection.

In Latin America, the emphasis on a mandatory framework reflects a proactive stance towards creating an inclusive and competitive financial environment. This approach aligns well with the region’s goals of accelerating financial inclusion and leveraging technology and data to empower consumers and businesses. It ensures that all stakeholders, regardless of size, have equal opportunities to participate in the evolving financial landscape.

Thus, while recognizing the value of voluntary systems globally, the mandatory approach in Latin America, as advocated by FDATA LATAM and the IDB, is particularly well-suited to the region’s objectives. It strikes a balance between regulation and innovation, paving the way for a more equitable and progressive financial sector.

I have two special requests for the New Year:

I would love to see more institutions, government sectors, and private entities embracing the principles of Open Data, making datasets publicly available in machine-readable format.

Equally important is helping people to become more aware of the value of their own data and how useful it is when used in an Open Data environment.

It is so important to remember the power of Open Data lies in its use, so the ultimate wish would be to see more innovative applications of Open Data in solving real-world problems and enhancing people’s lives.

My wishes for 2024 hastening an open data sharing economy are centred around two things:

1) Enhancing trust in the system by ensuring permissioned data sharing and consent best practice principles are adopted by each and every government, industry, sector and scheme. Without a robust consent and authentication framework, trust in the system cannot exist. Consumers need to trust their data is safe and secure before even considering sharing it; without trust, adoption is doomed. Consent and permission is the key to unlocking data sharing.

2) Getting governments to accelerate opening up their own data sets, leading by example in those jurisdictions that have active data sharing legislation in play or being developed. If they want specific industry sectors to participate in those wider schemes, governments can easily incentivise that by cracking open government held data. It also increases outside investment in creating the necessary frameworks to enable safe, secure data sharing across sectors.

In 2024, I believe that some countries in the region will still face technical challenges and issues related to the financing and maintenance of data-sharing infrastructures.

However, Brazil, with its advanced implementation and exploration of investment and insurance data, and the regulatory advancements in Chile, could position both countries as regional and global benchmarks.

The primary challenge for Brazil, in my opinion, may revolve around the monetization of the data collected by institutions, whether they are major banks or third-party providers (TPPs). As for Chile, the key challenge might be the implementation of a technical and governance model that enables the emergence of new use cases.

Open Data has always been and will always be about placing “The Right Data, into the Hands, at the Right Time, Changing the World.”

As we see some regions around the world maturing their regimes whilst others come online, my wish is to see the proverbial “Carrot and Stick” approach be sidelined, with the spotlight placed firmly on “Value Realisation” by the consumer. I hope to see an increase in Collaborative Data Initiatives leading to Greater Consumer Engagement with the realisation that access and control through privacy-focused data channelling into fit-for-purpose Use-Cases can change lives/livelihoods. Success for Open Data is when the user no longer focuses on the puppet strings or rails as the Industry refers to them; and, is not burdened by how it works, but rather the user experience that Open Data allows. Will it increase Data Literacy? It should. Will it provide enhanced consumer experiences and create greater internal efficiencies for the Data suppliers? Quite possibly. Will we see a greater focus on Tech being built with Privacy-by-Design? Definitely.

2024 will see the continued adoption of Open Data practices; some mandatory, some voluntary; ALL will benefit consumers in the long run. 2024 will also be the year that increased focus on the burden of participation must be considered. If we prevent sections of the Industry from participating, we will scuttle Open Data before we even start. 2024 will also be the year of closing the loop between data sharing and action initiation. Without this final piece of the puzzle, the incentives for consumers to adopt Open Data for “part of their requirements” just don’t make sense. If it doesn’t satisfy their entire needs, why change from the antiquated but familiar practices that already exist?!