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What can your data do for you? In the credit market, operations are associated with some level of risk, which can be assessed as higher or lower, based on the information available for credit analysis. The lower the perceived risk, the better the credit conditions.
Recently, two instruments have been created to allow borrowers to negotiate fairer credit operations based on what they have to show for it: the Positive data and Open Finance. In Brazil, both were developed as part of the effort to modernize the credit market. Each has its purpose and, when combined, they enhance the sustainability of credit.
The Positive Registry is an instrument for fairer credit analysis. By gathering information on payments made to sectors other than the financial sector, such as energy, telecommunications, sanitation and gas utilities, it has a more complete database, which includes paid obligations, as well as any outstanding bills. By gathering information that goes beyond the financial sector, the Cadastro Positivo gives visibility to those who are invisible, boosting credit operations.
Open Finance is a more recent idea, based on the creation of an infrastructure for sharing customer registration and transactional data, with a very clear and non-negotiable assumption: the data can only be used with the consent of the data subject. The first model appeared in the UK in 2018 and has since been gradually adopted in several countries.
The European Union has taken the lead, and other regions are making progress in regulating the so-called open financial system. As The Open Finance Index“ report”, This is a global phenomenon. The study followed the experience of 23 countries that have already taken the first steps in implementing the “Open” ecosystem, including Brazil. In Europe, the United Kingdom leads the way, followed by countries such as France, Germany, Spain and the Netherlands.
In Latin America, Brazil stands out as a promising case. The document highlights the fact that, in the first year, the country registered 5 million connections - something that took the UK five years to achieve. By February 2023, Brazil had reached around 22 million consents, 15 million customers and more than 800 institutions. For this achievement, the survey states that the Brazilian case deserves to be closely monitored in the coming years. Initially called Open Banking, this ecosystem was renamed Open Finance to take account of the expansion of its scope to include insurance, investment and foreign exchange services.
Other Latin American countries, besides Brazil, are taking care of implementing the ecosystem. The study highlights Mexico, with its robust regulation of fintechs, and says it expects progress in that country by 2023. Colombia, Chile and Argentina are taking the first steps in the same direction.
Among the services promoted under the open financial system, we highlight the development of marketplaces and comparators of credit proposals, as well as consolidators of banking information aimed at financial control for consumers and companies. There are also new developments in payment methods: it is now possible to transfer a bank balance using another bank's app, for example. And the possibilities are endless, even unimaginable today.
The novelties of Open Finance facilitate financial transactions, act as a powerful tool for negotiating credit conditions and have a limited effect on reducing information asymmetry by stimulating healthy competition, bringing efficiency and effectiveness. After all, it is always the data subject who determines what to share and with whom. Credit analysis should be based on a broader set of information than that flowing through Open Finance, through traditional instruments such as negative data, and new instruments such as the Positive Registry and services derived from these databases.
Evidencing the complementarity of the instruments, data from the credit bureau sector shows a positive impact on consumers' ability to pay, estimated based on the combination of information from bureaus and Open Finance. In Brazil, the open system could include around 4.6 million people in the credit market and inject R$ 760 billion into the economy. This improvement in estimates could lead to an increase in the supply of credit.
Developed in the same context as the modernization of the Brazilian credit market, the Cadastro Positivo and Open Finance, when combined, favor competition and enable more accurate credit analysis. These instruments act as incentives for healthy credit behavior, rewarding punctuality in payments. The bottom line is that, with the development of the credit market, your data can already do a lot for you and will do more and more.
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By: Elias Sfeir President of ANBC & Member of the Climate Council of the City of São Paulo & Certified Advisor
