Open banking and Pix will help contain post-pandemic banking concentration, says Brazil's Central Bank

July 14, 2020
Repórter no jornal Valor Econômico.
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The implementation of open banking and Pix, system of instant payments, will foster a more open and competitive Brazilian financial system, and should contribute so that the current crisis does not lead to an increase in concentration.

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The statement was made by the director of organization of the financial system and resolution of the Central Bank (BC), João Manoel Pinho de Mello, today at Live do Valor.

According to him, the two structures were built to allow the participation of large and small banks, payment institutions, fintechs and technology companies. "With open banking, deconcentration will be a consequence, but the environment will be more competitive," he said.

In the case of Pix, Pinho de Mello pointed out, participation will be mandatory for the largest financial and payment institutions. Even so, a much larger number of interested parties - 980 in total - have already signed up to join the service. Mello stated that BC's performance at Pix has two fronts.

One is to provide an instant settlement platform and a user identification database at low cost. The other pillar is the rules for the functioning of the market. "The BC is not going to offer service," he said. The BC director stated that the concern with the regulator's exemption is “legitimate, just”.

However, he stressed that the agency will not operate in the market and will have the function of ensuring the equality, neutrality and interoperability of payment services.

'Big techs' will have to submit to rules, says BC

The Central Bank (BC) is open to the entry of large technology companies in the financial and payments sector, but will require that they comply with regulation and that their services do not harm competition.

“Any solutions that are pro-competitive, and that we have guaranteed that everyone can compete, we will authorize. But we are going to fulfill the legal mandate to guarantee interoperability, neutrality and competitive equality, ”he said.

It is these principles that will guide the BC's analysis of the payments service via WhatsApp - announced last month and suspended a few days later by the regulator, who wants to better understand the terms of the payment arrangement before releasing it. "Once these conditions are guaranteed, that it is [a service] pro-competitive and for everyone, it will have no problem in authorizing it," he said.

The Visa and Mastercard flags, which are part of the agreement with Facebook, submitted a proposal to the regulator last week to be able to make payments via WhatsApp.

The BC is at the forefront of the development of Pix, a means of instant payments that will allow users to transfer funds between any institution's accounts free of charge to payers and recipients. The regulator's intention is to create a comprehensive infrastructure and prevent the market from being dominated by “vertical” services, as occurred in China.

It is common ground, for the Central Bank, that the various payment solutions that emerge in the country are interoperable, that is, that it is possible to transfer money between any accounts, from any provider. Pinho de Mello pointed out that the regulatory body and the Administrative Council for Economic Defense (Cade) have worked for years to open the payment market, so that today, creditors' machines accept cards from all brands. Before, Visanet (now Cielo) only accepted Visa cards and Redecard terminals (now Rede) only passed Mastercard transactions. "We will prevent this from happening at all costs," he said.

Another objective is that the services have a low cost for the end user. In the case of WhatsApp, the BC director affirmed that the local authority learned "from the press" that the service would charge tenants a fee of almost 4% per transaction, well above the average of 0.9% charged in debit card transactions and 1.7% in credit.

“You have a social media with 130 million users and you become a payment initiator. It is born big. It is possible that the shopkeeper is unable to deny payment by this means [due to the fact that it is large] ”, he said. "There we have a problem."

According to Pinho de Mello, "big techs" are welcome, but they will have to be subject to the rules and, in some situations, the BC will have to adapt the regulations to contemplate the changes that they may represent for the market. The regulator may require technology giants to request prior authorization to offer payment services - unlike fintechs.

The BC director also countered the criticism that the agency was interfering in the market, and losing the necessary exemption, when developing Pix. According to Pinho de Mello, the concern is legitimate, but the role of the regulator must adapt to changes in the economic environment. Central banks around the world, he said, see the need to ensure an equitable, interoperable and neutral payment infrastructure as an essential element in the new scenario.

Pinho de Mello added that BC's performance at Pix has two fronts. One is to provide an instant settlement platform and a user identification database at low cost. The other pillar is the rules for the functioning of the market. "The BC is not going to offer services," he said.

In the Brazilian case, the implementation of Pix and open banking - another item on the BC # agenda - will help foster a more open and competitive financial system, and should contribute to ensuring that the current crisis does not lead to an increase in banking concentration, Mello said.

According to him, the two structures are being built in order to allow the participation of large and small banks, payment institutions, fintechs and technology companies. The objective is that, in this way, individuals and companies have access to better credit offers and other products. "With open banking, deconcentration will be a consequence, but the environment will be more competitive," he said.

In the case of Pix, whose launch is scheduled for November, participation will be mandatory for the largest financial and payment institutions. Even so, a much larger number of interested parties - 980 in total - have already signed up to join the service.

Las opiniones compartidas y expresadas por los analistas son libres e independientes, y de ellas son responsables sus autores. No reflejan ni comprometen el pensamiento u opinión de Latam Fintech Hub, por lo cual no pueden ser interpretadas como recomendaciones emitidas por la platafomra. Esta plataforma es un espacio abierto para promover la diversidad de puntos de vista sobre el ecosistema Fintech.

The statement was made by the director of organization of the financial system and resolution of the Central Bank (BC), João Manoel Pinho de Mello, today at Live do Valor.

According to him, the two structures were built to allow the participation of large and small banks, payment institutions, fintechs and technology companies. "With open banking, deconcentration will be a consequence, but the environment will be more competitive," he said.

In the case of Pix, Pinho de Mello pointed out, participation will be mandatory for the largest financial and payment institutions. Even so, a much larger number of interested parties - 980 in total - have already signed up to join the service. Mello stated that BC's performance at Pix has two fronts.

One is to provide an instant settlement platform and a user identification database at low cost. The other pillar is the rules for the functioning of the market. "The BC is not going to offer service," he said. The BC director stated that the concern with the regulator's exemption is “legitimate, just”.

However, he stressed that the agency will not operate in the market and will have the function of ensuring the equality, neutrality and interoperability of payment services.

'Big techs' will have to submit to rules, says BC

The Central Bank (BC) is open to the entry of large technology companies in the financial and payments sector, but will require that they comply with regulation and that their services do not harm competition.

“Any solutions that are pro-competitive, and that we have guaranteed that everyone can compete, we will authorize. But we are going to fulfill the legal mandate to guarantee interoperability, neutrality and competitive equality, ”he said.

It is these principles that will guide the BC's analysis of the payments service via WhatsApp - announced last month and suspended a few days later by the regulator, who wants to better understand the terms of the payment arrangement before releasing it. "Once these conditions are guaranteed, that it is [a service] pro-competitive and for everyone, it will have no problem in authorizing it," he said.

The Visa and Mastercard flags, which are part of the agreement with Facebook, submitted a proposal to the regulator last week to be able to make payments via WhatsApp.

The BC is at the forefront of the development of Pix, a means of instant payments that will allow users to transfer funds between any institution's accounts free of charge to payers and recipients. The regulator's intention is to create a comprehensive infrastructure and prevent the market from being dominated by “vertical” services, as occurred in China.

It is common ground, for the Central Bank, that the various payment solutions that emerge in the country are interoperable, that is, that it is possible to transfer money between any accounts, from any provider. Pinho de Mello pointed out that the regulatory body and the Administrative Council for Economic Defense (Cade) have worked for years to open the payment market, so that today, creditors' machines accept cards from all brands. Before, Visanet (now Cielo) only accepted Visa cards and Redecard terminals (now Rede) only passed Mastercard transactions. "We will prevent this from happening at all costs," he said.

Another objective is that the services have a low cost for the end user. In the case of WhatsApp, the BC director affirmed that the local authority learned "from the press" that the service would charge tenants a fee of almost 4% per transaction, well above the average of 0.9% charged in debit card transactions and 1.7% in credit.

“You have a social media with 130 million users and you become a payment initiator. It is born big. It is possible that the shopkeeper is unable to deny payment by this means [due to the fact that it is large] ”, he said. "There we have a problem."

According to Pinho de Mello, "big techs" are welcome, but they will have to be subject to the rules and, in some situations, the BC will have to adapt the regulations to contemplate the changes that they may represent for the market. The regulator may require technology giants to request prior authorization to offer payment services - unlike fintechs.

The BC director also countered the criticism that the agency was interfering in the market, and losing the necessary exemption, when developing Pix. According to Pinho de Mello, the concern is legitimate, but the role of the regulator must adapt to changes in the economic environment. Central banks around the world, he said, see the need to ensure an equitable, interoperable and neutral payment infrastructure as an essential element in the new scenario.

Pinho de Mello added that BC's performance at Pix has two fronts. One is to provide an instant settlement platform and a user identification database at low cost. The other pillar is the rules for the functioning of the market. "The BC is not going to offer services," he said.

In the Brazilian case, the implementation of Pix and open banking - another item on the BC # agenda - will help foster a more open and competitive financial system, and should contribute to ensuring that the current crisis does not lead to an increase in banking concentration, Mello said.

According to him, the two structures are being built in order to allow the participation of large and small banks, payment institutions, fintechs and technology companies. The objective is that, in this way, individuals and companies have access to better credit offers and other products. "With open banking, deconcentration will be a consequence, but the environment will be more competitive," he said.

In the case of Pix, whose launch is scheduled for November, participation will be mandatory for the largest financial and payment institutions. Even so, a much larger number of interested parties - 980 in total - have already signed up to join the service.

Las opiniones compartidas y expresadas por los analistas son libres e independientes, y solamente sus autores son responsables de ellas. No reflejan ni comprometen el pensamiento o la opinión del equipo de Latam Fintech Hub y, por lo tanto, no pueden interpretarse como recomendaciones emitidas por la plataforma. Esta plataforma es un espacio abierto para promover la diversidad de puntos de vista en el ecosistema Fintech.
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