30th November 2023

Better business. Better community

Business Industry and Financial

Nubank, fintechs take the lead in Open Finance in Brazil

The Central Bank of Brazil envisaged Open Finance as a game changer for the financial system. After two years, it is finally taking off, and fintech companies like Nubank appear to be making the most out of it.

The neobank emerged as the top data receiver via open finance this year, a framework that facilitates communication between banks and fintechs through APIs. The overarching idea is to eliminate information asymmetry and help institutions drive a more tailor-made customer offer. Also, to reduce the costs of financial services.

A pure digital enterprise, Nubank was the most active player by a wide margin. According to data from the Open Finance governance structure, it obtained 7.4 billion information requests from other institutions in Brazil. This amounted to 46% of all communications, far more than Itaú, the country’s largest traditional bank, with 23%.

A digital-first approach

The data reflects Nubank’s proactive efforts to promote Open Finance adoption among its customer base. Given their challenger status, it is only natural that neobanks leverage the system more extensively than well-established banks that have already secured leadership positions.

“From the beginning, fintechs saw greater value and opportunities with access to relationship data for a better understanding of customer habits,” said Carlos Augusto de Oliveira, executive director at ABFintechs in Brazil. “They have been more active in proposals to attract customers to the ecosystem.”

To be sure, other fintechs have also unveiled a similar strategy. Mercado Pago, online marketplace Mercado Libre’s fintech arm, accounted for 7% of all data requests in the period, which stretches up to the end of May.

Communications within the Open Finance framework are carried out through APIs. These enable institutions’ systems to share information with each other. As per the regulation, all of these data transfers require explicit user consent.

Open Finance to enhance Nubank’s credit assessment

For fintechs, opportunities stemming from this framework are enormous. At first, Nubank seeks to use this information to improve credit assessment skills, whether card or personal loans. The digital bank, which boasts over 75 million customers in Brazil, has been taking steps into the loan segment in the country as it looks to increase profitability.

“We have gathered significant data on top of a sophisticated data infrastructure, which is increasingly a key piece of our product design and artificial intelligence strategy,” David Velez, co-founder and chief executive, said recently. “We have built unique capabilities in credit underwriting and financial service.”

But opportunities exceed the realm of credit. According to Nubank, Open Finance could also pave the way for other products and services, such as visualizing all bank accounts through the same company app.

Roberto Campos Neto, central bank governor in Brazil
Roberto Campos Neto, central bank governor in Brazil.

Experts argue that a leaner and more modern structure contributes to fintechs such as Nubank taking the lead regarding Open Finance. Banks struggle to accommodate their legacy systems to better access and process data. However, this technological advantage could decrease over time.

“Banks are working on the project as much as fintechs are,” said Oliveira. “Naturally, this presents a greater challenge to them. But once this phase of preparation is overcome, they will certainly be applying strategies to attract customers.”

Early stages for Open Finance in Brazil

To be sure, Open Finance is still in the initial phase. Beyond Nubank, most institutions are building the necessary infrastructure to take full advantage of a more competitive ecosystem.

The central bank began gradually implementing the framework more than two years ago. Eight hundred institutions — from banks to fintechs to credit unions — are now part of the data collaboration system.

Admittedly, there are still few concrete benefits for customers who give consent, and much needs to be adjusted going forward. Replicating the meteoric success of instant payment Pix is out of the question. But the longer-term consequences for the industry, experts argue, could be far-reaching.

  • David is a Latin American journalist. He reports regularly on the region for global news organizations such as The Washington Post, The New York Times, The Financial Times, and Americas Quarterly.

    He has worked for S&P Global Market Intelligence as a LatAm financial reporter and has built expertise on fintech and market trends in the region.

    He lives in Buenos Aires.