President Petro: Mandatory 'Open Finance' is the solution to reactivate the economy

Dear President Gustavo Petro,

This letter is written by two leaders of the fintech ecosystem in response to your proposal to reactivate the economy through "forced investments." We invite you to explore Open Finance as one of your main initiatives for the economic recovery we all desire.

In this letter, we would like to explain why Open Finance could be a significant initiative for your government and a lasting legacy of financial inclusion in Colombia. You still have two years left, but this must be implemented now to contribute meaningfully to your economic recovery plan.

People's consumption data is the gold of our era, and financial data is no exception. The major issue today in Colombia is that users do not own their financial data. Yes, as you read this. Your financial information is not yours because traditional financial institutions believe they own it, but that must change very soon.

The purpose of this entire system is threefold: greater competition between banks and fintechs for users, empowering users over institutions, and expanding the number of people in the financial system.

This means that if users own their financial and transactional information and decide to share it with any entity (fintech or bank), there will be competition between entities to retain that user. Interest rates could drop due to competitive pressure, more personalized products could be offered to the user, and financial inclusion would be achieved—a key initiative of your government.

The current problem is as follows: financial and transactional information in real time belongs to the bank where each user has an account, loan, or credit card. If a user switches to another bank, that bank cannot see the user's real-time transactional information and will find it challenging to offer a better rate for a loan or a credit card with a higher limit.

The bank will simply review the information available from the credit bureau, which is neither updated nor detailed, and will have to make a decision about that user. Therefore, it is difficult for entities to compete, as each institution jealously guards the data.

It is evident that the fear of losing users is one of the reasons why this has not yet come to fruition in the country. Despite the fact that Financial Superintendent César Ferrari sees it as a priority, and the fintech ecosystem has fought a titanic battle to empower users against financial institutions and achieve competition among them and genuine financial inclusion.

Imagine a scenario where users' information is truly at their service and for their financial benefit. The examples I gave above are of users who already know a financial institution, but the concept of open data challenges that traditional model because the more detailed information there is, the more people can be brought into the financial system and given the credit opportunities you envision with the idea of "forced investments."

This is because fintechs will be able to compete more effectively with banks and prevent users from being concentrated in just a few financial institutions. If you open the data, you will be able to distribute users among different entities, guarantee good interest rates, and bring more people into the financial system.

Moreover, fintechs have been characterized by providing access to financial services using alternative data, with non-traditional scoring methods and taking on greater risk to reach populations excluded by traditional banks—people who never thought they could access financial services.

Let me remind you that the concept of Open Finance emerged in the United Kingdom, in a scenario similar to what we are experiencing in Colombia, about ten years ago. Consumer advocates realized that a monopolistic banking model and lack of innovation were limiting access to financial services for many people, hindering their personal development.

Thus, they decided to force institutions to provide users with their information so they could decide which entity to share it with. This led to greater competition, greater access to financial services, and turned the United Kingdom into one of the leading countries in technology and financial inclusion.

You have this opportunity within your reach, but let us explain why this has been so challenging in Colombia.

The issue of Open Finance, following the boom in the United Kingdom and other countries, began to resonate around the world, and Colombia was no exception. This is why, at the end of the government of former President Iván Duque, Decree 1297 was issued, which aimed to ensure greater competition in the financial sector and opened the door to a regulatory framework for Open Finance. The problem was that it was not explicitly made mandatory, but voluntary.

This meant that only entities that wanted to could provide users with their information, which evidently discouraged the spirit of competition and undermined everything we have explained to you.

It is essential to emphasize that Open Finance only works if it is mandatory.

However, things have changed under your government, and for the better: You included the obligation of Open Data in the country in your Development Plan, and the Financial Superintendency has already issued Circular 004, which calls for amending Decree 1297 to make Open Finance mandatory. But this amendment has not yet come to light, and sadly, what was stipulated in your Development Plan has significantly delayed the implementation of this public policy.

Let us explain why we see it this way.

When we talk about financial data, we refer to three concepts: Open Banking, Open Finance, and Open Data. These define how much information fintechs or banks will be able to access to offer better loans, rates, or even help more people enter the financial system.

Open Banking refers only to user data in financial institutions. Open Finance adds data from all entities supervised by the Financial Superintendency and fintechs (not supervised). Meanwhile, Open Data refers to all consumption information related to a person.

It is very important to remind you that all this information must be protected by highly secure technological entities, that banks or fintechs will only be able to access it if the user so desires, and that entities will connect to that information through sophisticated APIs that guarantee its security.

The problem we see is that, although ideally a country should have mandatory Open Data, as Colombia does in its National Development Plan, by encompassing so much, it is not achieving the concrete implementation of the two previous phases: Open Banking and Open Finance.

No country in the world has managed to implement Open Data because that would take years or decades to get all sectors of a country to agree on the regulation of all the information they must provide to users. We will eventually move in that direction, but for now, it is very challenging to advance.

By trying to cover so much, we are unfortunately allowing the traditional financial system to remain comfortable, and Colombia continues in a scenario of zero competition between banks and fintechs.

Yes, we see cases where there is a "rate war on savings accounts," but institutions are still fighting for users with the same information provided by the credit bureau, without the ability to truly compete for users. Moreover, how can we ensure that people can save money if they do not have access to credit to improve their living conditions, study, or buy a home?

We know the world is in crisis and that the government is seeking alternatives to reactivate the economy. That is why we wanted to contribute to the public debate and write this letter to show that simply making Open Finance mandatory can bring about a structural change in favor of financial inclusion.

Rest assured that the fintech sector will contribute with our technology to make this system work effectively and ensure that user information, which is the most important element, remains secure.

Count on us for the economic recovery.

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