The financial sector is evolving faster than ever. What started as Open Banking—allowing third-party access to banking data—has expanded into a broader concept: Open Finance. Now, it’s not just about sharing banking information but enabling access to a wide range of financial data, including insurance, investments, and pensions.
This shift is reshaping the way we interact with financial services while introducing new opportunities and challenges. How does this impact users? What role do banks and fintechs play in this new phase? And how will the introduction of PSD3 influence this expanding ecosystem?
In this article, we explore the transition from Open Banking to Open Finance, its benefits and risks, and the future of financial regulation.
What Is Open Banking?
Open Banking is a model that allows third-party providers to securely and transparently access customers’ financial data through APIs (Application Programming Interfaces). Its goal is to enhance connectivity within the financial ecosystem, enabling banks, fintechs, and other service providers to develop more innovative and personalized solutions.
This model doesn’t mean that banks cease to be central institutions in the financial system. Instead, it establishes rules to ensure that, with customer consent, their data can be used by other players to offer new services.
In Europe, Open Banking has been largely driven by the Second Payment Services Directive (PSD2), which requires banks to share certain financial data with authorized third parties and enables payments to be initiated without traditional intermediaries.
In Latin America, some countries have followed a similar path with specific regulations. Mexico introduced its Fintech Law in 2018, while Colombia established a regulatory framework with Decree 1297, setting guidelines for data integration among financial institutions.
The regulatory approach in the United States is different. In November 2024, the Consumer Financial Protection Bureau (CFPB) finalized the Open Banking Rule under Section 1033 of the Dodd-Frank Act. Unlike the European model, which mandates that banks share data with third parties, U.S. regulations focus on ensuring data portability and giving consumers greater control over their financial information.
The Shift to Open Finance
Open Banking has revolutionized how financial data is shared, but its scope has remained largely limited to banking data, such as accounts and payments. The natural evolution of this model is Open Finance, a broader concept that extends data sharing to other financial sectors, including insurance, investments, pension funds, and other financial products.
Open Finance aims to give consumers a more comprehensive view of their financial situation and enable greater interoperability across different services. While Open Banking allows users to connect multiple bank accounts in a single app, Open Finance takes it further by integrating information from various financial products into one environment—simplifying decision-making and enhancing access to personalized services.
According to the OECD, Open Finance represents the next step in the digitalization of the financial sector, driven by consumer demand and the need for innovation in financial services. This model also creates new business opportunities for fintechs and other companies, allowing them to develop more comprehensive solutions by leveraging a wider range of financial data.
Opportunities and Risks of Open Finance
Open Finance has the potential to transform the financial sector by expanding access and interoperability of financial data beyond banks. While this evolution presents significant opportunities, it also introduces risks that require a strong regulatory framework.
Opportunities:
- Greater access to financial services: Open Finance enables more efficient personal finance management by integrating accounts, investments, insurance, and pensions into a single platform.
- Driving innovation: It fosters the development of new business models where fintechs, insurers, and other players can offer more personalized financial services.
- Increased competition: The entry of new players into the financial sector promotes greater product diversification and better conditions for consumers.
- Enhanced user experience: Interoperability between different financial services allows for process automation and the delivery of more efficient, accessible solutions.
Challenges
- Data management and protection: The increased sharing of financial information raises the risk of misuse and security breaches.
- Consumer privacy: It is crucial to ensure that data is used only for agreed-upon purposes and remains protected from unauthorized access.
- Fraud and cybersecurity: A more open ecosystem may become a target for cyberattacks, making strong authentication and control mechanisms essential.
- Unfair competition and market concentration: Companies with greater technological capabilities may gain advantages over smaller players, impacting market fairness.
- Systemic risks: A lack of proper regulations could create imbalances in the financial sector, affecting overall stability.
To mitigate these risks, Open Finance regulations must focus on ensuring security, transparency, and consumer protection. Some countries have already taken steps in this direction. In the European Union, the European Commission introduced a legislative proposal in 2023 to regulate financial data access under the Open Finance framework. Brazil and India have also implemented regulations designed to uphold high security standards and ensure effective oversight of financial data usage.
As more countries embrace Open Finance, the challenge will be balancing innovation and security, ensuring that the benefits of financial openness are not undermined by risks that could erode consumer trust and financial system stability.
New Regulations and Their Impact on Open Finance
The growth of Open Finance on a global scale is closely linked to the evolution of regulations in different markets. These regulatory frameworks seek to establish a balance between innovation, security, and consumer protection, facilitating interoperability and access to financial data in an increasingly digital ecosystem.
Europe: PSD3 and the Strengthening of Open Finance
In the European Union, PSD3 and the new Payment Services Regulation have been proposed to enhance security, competition, and transparency in financial services.
Although PSD3 is still under discussion and has not yet been implemented, its regulatory framework lays the foundation for Open Finance by defining standards for opening financial data beyond the banking sector.
Among the most significant changes, minimum standards for APIs have been established to ensure their availability and eliminate barriers to data access for authorized third parties.
Another key aspect is stronger consumer protection through reinforced authentication, reducing the risk of fraud. Additionally, PSD3 aims to prevent banks from unjustifiably blocking account access for new market players, fostering competition.
United States: The Open Banking Rule and Data Control
In the U.S., regulation has taken a different path from Europe. In November 2024, the Consumer Financial Protection Bureau (CFPB) finalized the Open Banking Rule under Section 1033 of the Dodd-Frank Act. Unlike the European model, which requires banks to share data with third parties, the U.S. approach focuses on ensuring financial data portability, giving consumers greater control over their information.
Although this regulation is still centered on Open Banking, it represents a step toward a broader Open Finance model, where financial data would extend beyond bank accounts to include insurance, investments, and pensions.
Latin America: Evolving Regulatory Frameworks
In Latin America, Open Finance regulation is not yet fully established. Most regulatory frameworks in the region are still focused on Open Banking, with some progress that could pave the way for a broader model.
- Brazil has been developing a regulatory framework since 2021, structured in four phases, starting with Open Banking and gradually evolving toward an Open Finance model. In the final implementation phase, data access was expanded beyond the banking sector to include insurance, investments, and pension plans.
- Mexico’s Fintech Law (2018) laid the groundwork for Open Banking, but a specific regulation for Open Finance has yet to be implemented.
- Colombia introduced Decree 1297 in 2022 to regulate payment initiation and the commercialization of financial data, though a consolidated framework for Open Finance is still lacking.
- Chile is in the process of developing a Fintech Law that will include Open Banking regulations, but its implementation remains under discussion.
As more countries establish specific regulations, Open Finance is becoming a key driver of financial sector digitalization, with frameworks designed to balance innovation and security.
Global Adoption of Open Finance
Open Finance continues to expand worldwide, driven by digitalization, the rise of fintechs, and the growing need for greater interoperability in financial services. According to Belvo’s report, the global Open Finance market reached $9.87 billion in 2022, with Latin America emerging as one of the regions with the highest potential for expansion.
A study by Allied Market Research estimates that the Open Banking market, which serves as the foundation for Open Finance, will reach $43.15 billion by 2026, highlighting the rapid growth of this financial model.
In terms of regulation, the Funcas report states that in the first quarter of 2024, 69 countries had implemented some form of open banking regulation, potentially paving the way for Open Finance adoption in certain markets.
As more countries move forward with Open Finance implementation, the trend points toward a more integrated financial ecosystem, creating opportunities for new business models and improving accessibility for consumers.
Latin America: A Key Region
The adoption of Open Finance in Latin America has been driven by factors such as increasing internet access, the rise of fintechs, and the need to improve financial inclusion. According to GSMA, the region has 440 million mobile subscriptions, with 70% of the population connected to the internet, enabling the expansion of digital financial services.
Belvo’s report highlights that the fintech sector has experienced rapid growth in the region, with 735 fintech companies currently operating and a total investment of $6.5 billion raised in recent funding rounds.
Additionally, Open Finance adoption in Latin America has been supported by the financial industry. A survey conducted by Belvo found that 84.8% of fintech professionals in the region believe that more companies will adopt Open Finance models in the near future. The segments expected to benefit the most from this trend include credit services (39.3%), credit scoring (22.3%), and personal finance management tools (18.8%).
Maximize Open Finance Opportunities with Latinia
To fully leverage the Open Finance ecosystem, financial institutions need cutting-edge technology to process real-time information, automate decision-making, and ensure data security.
With over 20 years of experience in the banking industry, Latinia helps banks lead the digital transformation by providing advanced real-time analytics, personalization, and critical event management tools. Our solutions enable financial institutions to turn communications into a competitive advantage, enhancing customer interactions while ensuring data protection.
Personalization and Recommendations in Open Finance
Open Finance gives banks access to more financial data than ever before. However, making this data actionable requires real-time processing and the ability to generate personalized recommendations instantly.
Latinia’s real-time decision engine analyzes customer transactional data and triggers tailored product or service recommendations based on individual needs. With this technology, banks can:
- Personalize offers based on user behavior and financial history.
- Optimize customer engagement by sending messages at the right moment.
- Boost conversion rates for financial products, such as insurance, investments, or credit lines, by tailoring proposals to each customer.
Example: If a user transfers funds to an investment platform, the bank can send a real-time notification with an offer for a complementary financial product, such as investment insurance.
Security and Fraud Prevention in an Open Finance Environment
Open Finance allows multiple players to access customer financial data, increasing the risk of fraud and unauthorized access. To mitigate these risks, banks need systems that detect anomalies in real time and trigger immediate security actions.
With Latinia’s Critical Events Gateway, financial institutions can process 50,000+ rules per second, enabling them to identify suspicious activity and send critical alerts to customers before fraud occurs.
- Real-time transaction monitoring to detect unusual behaviors.
- Proactive fraud detection and instant alert activation.
- Personalized security notifications to validate transactions.
Example: If a login attempt is detected from an unusual location or a suspicious transaction occurs, Latinia can send a real-time notification prompting the user to confirm its legitimacy before processing the transaction.
Discover how Latinia can transform your bank’s customer interactions. Contact us today to learn more or request a demo of our powerful real-time messaging solutions.
Categories: Trends