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Source: https://finsiders.com.br/ - By Elias Sfeir*, exclusive to Finsiders
There is a false idea that Open Banking, or the open financial system, will replace credit bureaus, but that was never its purpose. In fact, not only is it not going to put an end to the service of the bureaus, but they can help to enhance the objectives of Open Banking.
In general terms, Open Banking is the sharing of data, products and services through the opening up and integration of systems, and is based on the principle that the customer is the owner of their financial data.
This possibility, introduced through the regulation of the LGPD (General Law on the Protection of Personal Data), allows customers to decide with which institutions they will share their data and to choose which data to share.
This sharing, in turn, allows the institution to search for balances and statements from various customer accounts at one or more financial institutions and consolidate everything.
Highlighted in the BC# agenda being implemented by the Central Bank, the Open Banking
Structured to be implemented in four stages, the system is expected to be completed by next September and integrate not only financial institutions, but also payment institutions and other organizations authorized to operate by the Central Bank.
This tends to stimulate competition by simplifying the entry of new players, facilitating the launch of services that can be quickly adapted to the customer's wishes, creating an environment conducive to innovation, allowing the customer to decide what they want to do with their data and lowering costs.
Sharing information between several institutions, which until then had been exclusive to the one where the customer had a current account, tends to benefit the customer. They are now able to negotiate with all the institutions that have access to their data and therefore gain negotiating power.
And how can credit bureaus integrate with Open Banking? Today, in Brazil, only institutions regulated by the Central Bank can participate directly in the system. Thus, bureaus can be contracted by these participants to receive and process data, transforming it into insights, so that these insights generate business for these institutions.
It is important to consider that institutions that rely solely on the information contained in this layer brought by Open Banking could make mistakes in their analysis.
For example, data owners may choose to indicate an account where their situation is stable and positive, omitting data from other institutions where there are arrears or even defaults. Hence the importance of accessing the services of bureaus, which offer a broad, 360-degree view of the data subject.
In general, bureaus are developing solutions to help institutions participating in Open Banking make decisions, based on their negative information, consultations, positive information and the various strategic partnerships for obtaining data.
This information brings together many layers of data to model and create a pattern to generate the credit score. To all this data processed by the bureaus is added the data that the financial institution will send, which can improve the performance and accuracy of the statistical models.
Having data that makes it possible to better understand the customer financially can extend credit to those who previously didn't have access to it and increase conversion.
Potentially, these two situations tend to increase lending and improve credit conditions and, consequently, have a positive impact on the credit market as a whole.
