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Contxto – When it comes to open banking regulations, the Central Bank of Brazil wasn’t severe when it came to certain technical aspects. In fact, it left it at banks’ discretion to determine how they create their software. This is often referred to as “self-regulation” within open banking.
However, it’s also become a concern for Brazilian neobank, Nubank.
Related article: Brazil to embrace open banking regulations in November 2020
In a document it recently published on its website, “An outlook on Open Banking in Brazil,” the startup proposes five guiding principles for self-regulating.
Why it’s a big deal: This document highlights the hidden dangers of self-regulation in the country that, if left unchecked, can place fintechs at a disadvantage.
Nubank and self-what?
With self-regulation, the Brazilian government won’t tell a bank and its programmers what kind of software architecture they should use when creating an API. They can do whatever the hell they want.
But that’s exactly the problem Nubank is worried about.
If traditional banks throw their weight around, they have the technical power to place red tape all over the information they hold. This puts startups and fintechs at a competitive disadvantage. Moreover, they can even hinder users’ ability to control their own data.
- Related article: Challenger and neo-banks from Brazil. What makes them different?
As a result, the unicorn proposes the following five design principles:
- Ensuring that communication is secure when data is being shared between parties.
- Offering users more control over their financial data through technology that has their needs and interests in mind.
- Efficient APIs that can handle large request loads effectively and quickly.
- Procure simple integration so that fintechs can more easily access the information banks hold.
- Flexibility so that fintechs and other parties may create more products beyond what the original API was designed to do.
Note that this document is just a proposal. But it’s an interesting way for the fintech to call out any bank thinking of subtly limiting competition.
It also shows it’s assuming a leadership role in these types of matters.
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Open banking, a theoretical opportunity
From an optimistic standpoint, self-regulation in open banking is a good thing.
It gives banks and fintechs leeway to connect and build on the technical aspects to control the sharing of data. It also grants for more flexibility as it allows for more possibilities to develop products that benefit end-users.
But from a more realistic perspective, banks can use technical aspects to limit communication and data access—thus backfiring on the entire principle of open banking.
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