#106: FA Miami 2024: What is the status of financial innovation in Latin America?
W FINTECHS NEWSLETTER #106: 06/05-12/05
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Last week, I was in Miami to participate in Fintech Americas Miami 2024, an event that brings together the largest banks and fintechs from Latin America, the USA, and Canada to discuss financial innovation.
It was two intense days of the event, where various topics were addressed, ranging from digital transformation to the challenges and opportunities of AI in the financial system, the current scenario of banks regarding financial innovation, and high-level discussions between regulators and the industry.
I believe the event managed to cover well the challenges that not only Brazil but the rest of the region have been facing regarding the emergence of new financial technologies.
Taking a cold analysis, I believe that Brazil is very advanced in many approaches (payments, data openness, tokenization, financial inclusion, etc.), but it is interesting to observe how other countries in the region face challenges different from ours (such as barriers to financial inclusion, lack of cooperation within the ecosystem, institutional challenges, etc.) and are using creativity and technique to overcome them.
One thing I found interesting is that unlike other events I've attended in Brazil in previous years, this one didn't focus as much on Open Finance — in fact, I've seen less and less of this topic in some forums — but rather focused on the use of AI and the adoption of instant payment systems.
I found this interesting for one main factor: Open Finance, when considered as an infrastructure that will enable access to more financial data, is just one stage of the digital transformation these banks will undergo. Payments are the pathway that will allow more users to adopt new technologies and use (creating data) the ecosystems of banks and fintechs; whereas AI is the pathway they will traverse to utilize these data, creating intelligence and use cases. In other words, Open Finance is just a step that will enable these data to flow among banking silos.
By the way, it was about the challenges of data and the difficulty of accessing them that I addressed in my presentation. The theme of my presentation was about "The Future of Data Privacy: How Web3 is Changing the Game". In it, I discussed the relationship between the other phases of the internet (Web1 and Web2) and how this new phase (Web3), based on Tokens, could change the way we interact with our data.
In the banking sector, this has been addressed for years. Previous internet setups created data silos. In the first phase, governance was community-driven, there was the possibility of reading information, but few functionalities. Then, we arrived at Web2, where there was an increase in functionalities, enabling the publication of information, i.e., not only reading but also writing data. However, governance was concentrated in major players, such as Facebook and Google.
This implies that we are exposed to their interests as companies, being subjected to data breaches, cyberattacks, and even policies of persecution by these networks.
Several governments have addressed this issue of privacy and difficulty in data portability by creating comprehensive privacy laws, such as GDPR in Europe and LGPD in Brazil. However, these laws only concentrated more power in the hands of Big Tech. Open Finance and open data ecosystems also emerge to ensure the right to portability, but there are various challenges within these ecosystems.
So, we have a problem here: these data-sharing infrastructures ensure compliance with data rights but have not been sufficient to guarantee data ownership. That's where Web3 comes in (which you can read more about 👉 here).
Real Time Payments
The Pix was also a relevant topic of successful case in the region. Carlos Brandt, Head of Operations and Management of Pix at the Central Bank of Brazil, presented how the payment system was built and what pillars ensured its success.
In 2016, Brazil implemented a comprehensive agenda called Agenda BC# focused on financial innovation. In 2019, dimensions such as inclusion, competitiveness, transparency, education, and excellence were added, and in 2020, sustainability. The Pix payment system was one of the innovations implemented, featuring phased implementation and robust governance.
It's interesting to see how Pix sparks interest across the region. Whenever I mentioned being Brazilian, or in other conversations, people asked about Pix and how it works. I saw not only one Brazilian, but more than five, opening their bank accounts (most of the time at Nubank) and showing how Pix worked in practice.
Watching other panels on instant payments and talking to people from other countries, it's noticeable that many countries are interested in implementing a similar system in their jurisdictions. Besides the efficiency the system brings, low-cost transfers, and streamlined user experience are its main characteristics.
Despite the interests, each country is at a different stage of development. In Argentina, virtual accounts were regulated, prioritizing interoperability between accounts and wallets. In Bolivia, regulators implemented QR Code payments to increase the use of digital wallets; however, the country faces various challenges in financial inclusion.
In Chile, the Fintech Law has been shaking up the country's market, and Open Finance is also a promise. In Colombia, interoperability was regulated for accessible and secure payments, highlighting the Digital Pay Law. In Costa Rica, a centralized registry of IBAN accounts associated with phone numbers was created. In Mexico, DiMo has been the new bet for greater adoption of instant payments.
The region presents a fragmented scenario in digital payments. Some countries have progressed more, while others face technical and institutional challenges. However, it's a topic that has been developing well, especially with the support of development banks.
AI
Another topic that caught my attention was how AI has indeed been in the spotlight of banks — a real hype — but there is a deeper understanding of its impact and relevance than there was months ago. As I showed in issue #103 (link 👉 here), AI Verticals have been changing the game in the financial sector.
Fintechs have been using artificial intelligence to offer better products to end customers, while banks have been focusing on improving internal processes. One lecture that addressed this topic was by Chris Colbert, former Director of Harvard Innovation Labs and Board Chair at Fintech Americas. With the theme "AI: Predator, Collaborator, or King of the Jungle?", he highlighted that AI is often portrayed as a force that threatens jobs, privacy, and even humanity itself. However, AI can be a powerful ally in various areas such as medicine, science, and industry, increasing efficiency, productivity, and even human creativity when used ethically and responsibly.
In the financial sector, the hope is that artificial intelligence will be another tool to provide better user experiences. Sayantan Mukhopadhyay, General Manager at Nubank, explained how the neobank has been using artificial intelligence to enhance not only internal processes (ranging from recruitment to people and process management) but also credit analysis processes, personalization of the user experience in the app, among other applications.
In the jungle law — the adaptation —, Open Finance, real-time payments, AI, and tokenization are the future.
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Until the next!
Walter Pereira
Disclaimer: The opinions expressed here are solely the responsibility of the author, Walter Pereira, and do not necessarily reflect the views of the sponsors, partners, or clients of W Fintechs.