Success in Open Finance Requires Trust – Lessons from Brazil

More and more countries are implementing open finance, a multilateral and open data-sharing regime that enables all parties that meet defined requirements to exchange data, including customer data. The policy motivations for open finance range from increasing competition in concentrated financial markets by allowing new entrants to engage with consumers and their financial data more easily; to encouraging product innovation through better consumer data and enabling payment initiation; to deepening financial access and inclusion for consumers. 

Brazil’s rapid expansion of open finance shows its potential to transform financial services.  Less than two years after its launch, Brazil’s open finance ecosystem reported over 27 million customers with 41 million accounts participating as of September 2023. This early success and sharp uptake can be attributed to enabling factors such as the implementation of the interoperable, fast payments system (Pix), and a vibrant fintech market (e.g., Mercado Pago, PicPay, NuBank). CGAP recently conducted research on the implementation of open finance in Brazil. This study conducted customer research in July 2023 with a nationally representative sample of 2000 respondents which offers valuable insights for Brazil as well as other markets interested in implementing open finance.  

Key findings

1.) Brazil’s high banking penetration and usage of digital financial services serve as critical building blocks for open finance adoption.

Account access is high in Brazil, with 96% of people in our sample having a bank account (Findex reports 84% for 2021) and 71% having two or more accounts. This is not least due to large-scale social payment programs implemented during the COVID-19 pandemic that brought millions of Brazilians to the formal financial sector. Importantly, most customers access their accounts through digital channels. Some 90% of respondents use online banking monthly and almost half of them daily, (including one-third of low-income customers (classified as ‘D and E’ segments in Figure 1). This is supported by high smartphone penetration (98% of respondents), with high ownership across all income segments, including 96% of respondents in the DE class. Smartphones are therefore an easy and readily available channel to access open finance services and provide necessary consent through an app. For other markets considering open finance, account access and regular usage should be key considerations for impact to expand beyond higher income segments.  

The existence of key open finance enablers, however, may not guarantee the current uptake will continue to scale, penetrate lower-income segments, and deepen financial inclusion. A key element of open finance regimes is that data sharing is conditioned on customer consent.  This requires customers to be aware of the option to participate in open finance and to be willing to exchange their data for additional value, such as a lower interest rate. 

2.) Currently, around half of Brazilian customers are aware of open finance

While 52% of respondents were initially not aware of the term open finance (or open banking), 27% of them were aware of the initiative but not its name, tipping the balance in favor of aware customers. A closer look at the findings reveals that women are less aware of open finance compared to men (45% vs 52%, respectively), and lower-income customers are less aware than high and middle-income (38% vs 57% and 52% respectively) customers. In addition, lack of awareness is highest among those who use digital banking less frequently, going from 46% for high-frequency users to almost 70% for mid and low-frequency users. This is consistent with how customers are typically introduced to open finance: 43% of customers learned about it through their bank’s app (32%), website (9%), branch (2%), or phone call (1%).   

While over a quarter (27%) of respondents were willing to share their financial data with another bank to receive benefits, this willingness differs by segment as presented in Figure 2. Women, lower-income people, and those with a more limited banking footprint are less willing to share data. 

Of those respondents answering "Yes": 32% were men and 23% were women; 36% were from income class A/B, 29% from income class C, 19% from income class D/E, and; 33% had two or more accounts, 13% had one account, 2% had zero accounts. 

3.) In our sample, 11% of people reported having joined open finance

Among those who were willing to share data, 27% reported having joined open finance. Again, we found that women, low-income customers, and those with more limited banking use have lower adoption rates (Figure 3).

Of those who joined: 15% were men and 7.4% were women; 17.2% were from income class A/B, 11.5% were from income class C, 6.4% were from income class D/E, and; 17.2% had two or more accounts, 11.5% had one account, and 6.4% had zero accounts. 

4.) To increase willingness and adoption, customers need to see clear benefits

The promise of better terms of credit is currently the primary driver of open finance adoption in Brazil. For those that have joined open finance, the main motivations were increasing their credit limits (55%) and improving the conditions of a loan (20%), followed by the convenience of having a consolidated view of their accounts (14%) and better control of their finances (12%). For those who haven’t joined open finance, the main reasons were lack of awareness (31%), lack of interest (26%), and security concerns (9%).

Implementation is still in its early days, and it is to be expected that it will take time for adoption to trickle down from more savvy, less risk-averse customers to the broader population. The outlook is bright as uptake has been faster than what we’ve seen in other markets and there are promising use cases that are emerging that are already seeing adoption amongst customers. Key use cases include credit scoring, personal financial management (PFM), personalized offers (including but not limited to, credit cards aligned with the spending profile of individuals, better credit limits, and discounts on specific stores), account onboarding, deposits between accounts of the same individual, P2P payments using funds from different accounts, and business financial management.  

The Brazilian open finance implementation has been a successful story with a quick and steep uptake. The financial inclusion story will take more time.  Our research suggests that the answer hinges on continuous improvements in customer awareness and willingness driven by clear use cases. This answer is likely as true for Brazil as it is for any other market. The initial sharp growth driven by high awareness and uptake among early adopters will be tested as the ecosystem matures. Use cases that offer clear benefits in high demand will ensure that customers willingly participate and renew their consent for data sharing when due (currently, consent is valid for 12 months). To ensure positive impact on financial inclusion and avoid exacerbating existing gaps, the outreach and use cases must cater to underserved and excluded populations, especially women, lower-income segments, and underserved regions.