Opportunities of Open Banking in LATAM

In Latin America the opportunities for fintech innovations are massive. From a shift of payment habits towards new and digital forms of payment to an entirely new structure of payment settling in the background. PayRetailers is part of all these transformations and keeps working together with many partners in Latin America, to make sure the right technologies are implemented at the right time.

In this article we take a look at a part of the hot fintech innovations that promise a major shift in the industry: Open Banking.

What is Open Banking

Open Banking or API Banking describes the process of opening up the bank sector and the banks’ data for third parties. With APIs (Application Programming Interfaces) data aggregation and usage becomes possible, as well as account transactions and operations facilitated by third parties. This new trend will add to the variety of products and services and lead to more possibilities and comfort for the end user. The ultimate achievement for an Open Banking service provider would be to offer a dashboard that shows all finance related activities in one place in real time.

It all started in 2018 with the Payments Service Directive 2 (PSD2) in Europe that soon after has been implemented by the UK. The directive supports users of financial services that want to receive more control over their data. The banks must offer discrimination free API-access for third parties for account and data fetching. This means that third parties may use parts of the e-banking-systems of different banks for their own platforms within products. On the other hand, the possibilities for banks grow as well. They can include data of other banks in their own products to offer a more complete product for the bank customer. The banks will be able to monetize data with the API access and partner with fintechs. Furthermore, the value chain can be optimized for separation of production and delivery of financial services. Lastly, the newly created sector of Baas (Banking as a Service) will help challenger and neo banks develop products.

The PSD-framework has reached Latin America but each country in the region interprets it differently. Mexico and Brazil play a leading role for shaping the future of banking. The regulators have a strong vision and are not shy to implement regulations. These two countries already have introduced regulations for parts of the sector like crowdfunding and P2P-lending.

Opportunities in Mexico

Mexico started in 2018 with the Fintech Law that provides a general framework. The Central Bank of Mexico and the National Banking and Securities Commission compiled the Open Banking Law in May 2020 as a result of two years listening to the stakeholders of the industry.

The first iteration of the law is about collecting Open Data. The next step of the law is to include regulation of aggregated data and data processing based on Open Data.

Opportunities in Brazil

Brazil followed soon after Mexico in 2019 when the Central Bank of Brazil started to acquire information from the industry. The bank together with the National Monetary Council released their Open Banking Law for the country in May 2020 as well.

The first iteration of this law already includes more aspects than the Mexican one. The objectives, principles and data scope have been defined. Moreover, a four-step implementation process is included, that comprises the regulator, representative trade associations and an independent advisor.

The first step is about gathering data from institutions about the usage of their products. This leads to data that helps create comparison tools.

The second step opens the sector up to be able to use basic end user data for new or enhanced products and services.

Step three is about the implementation of PISPs (Payment Initiation Service Providers) – companies that make use of the Open Banking infrastructure to facilitate payment transactions.

Step four will regulate the broad market and all other areas of banking related activities, such as pensions, FX, insurance and investments. Due to the wide-reaching scope, this can be considered the Open Finance stage.

What about the region as a whole and the outlook?

Besides Mexico and Brazil, other countries in the region are slower with establishing a legal framework. But it can be expected that Peru, Argentina and Chile will soon follow because of their big markets.

Overall, with the growing market penetration of smartphones (from 60% in 2018 to 80% in 2025) and digital services, especially when it comes to fintech innovations, we can expect a steadily growing interest of LATAM countries to develop the Open Banking or Open Finance sectors.

Two important aspects of Open Banking are driving the change – payment system modernization and financial inclusion. Open Banking will be a strong supporter of this change, foster competition and make use of the growing smartphone penetration. Challenger banks are able to offer strongly personalized services that traditional banks are lagging behind with. In turn this leads to an upwards-spiral of a blooming utility for the end consumer.

We at PayRetailers are providing payment service solutions in 12 countries in LATAM and counting. If your company wants to harvest the opportunities in that region, you should talk to us.

Fraud Risk for PSP in LATAM

The payment services sector in Latin America grows every year by a big margin. In 2019 the payment volume amounted to 80 billion dollars whereas in 2016 the market had a total size of 50 billion. On the one hand this enormous growth shows the big opportunities that payment services providers have but on the other hand the attractiveness for fraudulent activities rises as well. If you are a company that wants to start out in LATAM you face a set of challenges regarding fraud, and it is important to know how to mitigate them.

Having many systems means having many attack possibilities

Most Latin American countries have their own systems for their own currencies. Only a third of the consumers possess a credit card that can process foreign currencies. It is important for a PSP to offer services in local currency. Due to this very granular market coverage there are more ways of conducting fraud than in a more homogenous one.

In comparison to other parts of the world, in LATAM new account fraud is a major problem About every fourth registration has been deemed fraudulent Strongly linked with this phenomenon is the identity fraud which is being used to gain access to services with stolen or fake identities.

LATAM faces nearly double the amount of chargebacks compared to other regions in the world, with about 1.5% vs. 0.8% in the US. Even more concerning is the percentage of rejected orders due to fraud suspicion – 7% in LATAM compared to 2.5% in the US.

The Capacity to Combat Corruption by the Americas Society, Council of the Americas, and Control Risks, is a way of describing a countries’ ability to cope with fraudulent activities. For 2019 the overall LATAM score is lower than compared to 2018. Especially Brazil, Mexico and Chile suffered from a downgrade, although being the most important countries when it comes to payment service volumes.

How merchants can secure their businesses

An approach with only a subset of actions doesn’t help since fraudsters switch between attack methods. Security is a 24/7 job and can’t be tackled with traditional rule sets and matching lists for names or IPs rather than an elaborated software with multiple modules and sophisticated fraud detection algorithms.

Following measures, among others, are usually combined to achieve better security: Checking the IP address, IP geolocation and device IDs. Furthermore,  real time transaction tracking, maintaining customer profile databases, posing security questions for transactions, biometric identification and one time passwords.

The rising help of Artificial Intelligence is already helping companies. All big credit card providers offer such systems, and they could already prevent billions of USD of fraudulent activity in LATAM. Another advantage of these systems is the reduction of false positives which usually lead to costly manual interventions.

PayRetailers is one of the fastest growing PSPs in Latin America, partly due to the fact that it has introduced a strong solution to combat payment service fraud and maintains a strong network of security partners.

How does ArtificiaI Intelligence affect the Payment Industry

The rise of artificial intelligence (AI) based technologies is without a doubt reaching our everyday lives. From chatbots to complex engineering design there is a vast amount of applications. But how can such technologies be used in the payment services sector? Are there already innovations in place? What’s the future all about? These questions will be covered with this article.

AI based software gains traction

For many years now AI is being used in the banking sector for fraud detection purposes in real-time. Nowadays it’s the only viable solution for payment transaction processing as there are an estimated 700 billion payment transactions in 2020 who can’t be handled by humans anymore. Apart from this mature use case the constant development of the technologies behind AI make it now possible for it to tackle other business areas like customer service or personalized products. The traction of this area is accelerated by growing VC investments into AI based startups. For example in the US from just shy of a billion dollars in 2012 to 17 billion in 2019.

Making use of data

The digital age led companies to amass data about their clients for nearly every aspect of life. “Big Data” – a relatively new business sector is now a treasure trove for companies to unveil secrets formerly hidden in plain sight. AI technologies play a leading role in this area because the quality of results is largely based on high computing power and pattern recognition.

In the finance field the usage of AI based chatbots becomes apparent as one of the first areas that AI adds value to. Many finance companies help customers with site navigation, answering questions and education, all without the need of human intervention. There are even approaches where the GUI can be controlled by inquiring a chatbot so that the bot acts upon the orders of the user, e.g. transferring money or generating account statements. A good example is the partnership of the Ingenico Group with IBM Watson for the development of an AI based chatbot to be used in the retail and hotel sectors. The bot is programmed with natural language processing capability which helps the communication with the user. It is more similar to a personal talk than an unpleasant input-output-process. The bot can ask questions and tailor the retailers’ or hotels’ offering directly to the needs of the customer. The conversion rate compared to traditional apps is five times better, which shows the suitability of AI in that regard.

Another sector is the personalization of the credit score. Until today the biggest challenge for credit bureaus is the avoidance of false-negatives in calculating a persons’ creditworthiness. The traditional approach with mapping of zip codes and creating customer buckets is too brittle and the industry longs for new ways of tackling this problem. AI can look at the data and create a personal offer on the fly that fits the customer best. Especially for unbanked or newly banked persons the introduction into the finance system works with fewer barriers that way. But there’s another side to the medal as well: Risk of regulators seeing the AI as a black box and being unable to communicate the reason for credit denial.

In the payment sector there is huge potential left when it comes to personal AI based assistance. Constantly monitoring the data helps to guide and educate the consumer. A software could analyze the spending habits, recognize reoccurring payments and give educated and personal advice on which services to discontinue or introducing a personal savings plan.

Based on data is a new form of payment that uses biological features such as fingerprint, voice or face. These being unique to every human could replace plastic cards and other bulky means of payment entirely. Today many popular finance apps offer the login or approval of a payment with a fingerprint. But face scans and voice recognition are still in their infancy. The enrichment of the old standard 3D Secure with AI technologies is also in the making. That way the checkout process disruption can be mitigated.

The good and the bad

Although the possible personalization levels with AI are very impressive and make for an easier life when it comes to commercial activities. But there are downsides to it as well. With an AI becoming more and more capable it can be characterized as a human force in itself. This lets ethical questions arise. May an AI decide on how someone get a loan? Furthermore, the vast amount of data collection poses questions of privacy.

Companies have to provide the user with a detailed explanation of what the AI does and why – it should be positioned as a guide, not a god.

PayRetailers collaborates with many partners to offer innovative payment solutions. Contact us to learn more about our product suite and how you can leverage our technology network.

PayRetailers provides numerous possibilities for HotForex to process payments in Latin America

PayRetailers is well-known for serving clients in the foreign exchange industry and so it comes to no surprise that another partner of that sector joins forces with us – HotForex.

Who is HotForex and what do they do?

Our new partner has been founded in 2010 as a foreign exchange trading platform and is the brand name of the HF Markets (SV) Ltd which belongs to the HF Markets Group. Since inception HotForex could gain lots of traction in the market and has already been mentioned in the World Finance Magazine’s Top 100 list of companies which stands for a selection of companies that enjoy an outstanding leadership and propel their industries forward with their innovative power. The list is not only based on capitalization but on actual excellence in the field which shows a more complete operational power. The group has worked its way up to become the forex broker of choice for traders all over the world.

The management team at HotForex has many years of experience with trading on multiple platforms and in different markets. They saw the need for an overall better product as there have been order delays, system failures and weak customer service on most of the platforms. The mission of the founders was to create a platform that serves as a leading example for a company operating in their field. Since foundation HotForex implemented cutting-edge and innovative technology, a rigorously efficient settlement system to cut commissions and a top-notch customer support.

So for HotForex there are three main pillars of success: Innovative products, exceptional customer service, and unmatched trading conditions. Those led the company to achieve impressive numbers: Over 2.5 million active accounts worldwide, 45 industry awards, 24/5 customer service offered in 27 languages, over 200 employees worldwide, quick and free registration process and deposits, low spreads, negative balance protection and leading security in terms of funds management.

HotForex is a forex and commodities broker with interfaces for both retail and institutional clients. The product portfolio consists of Forex-CFDs, products in the realm of Metals & Energy, indices, shares, commodities, ETFs, DMA Stocks, Bonds and Crypto-Currencies. For achieving the best user experience a client can choose from multiple account types. Additionally, HotForex offers trading tools and educational content for the client to dive into.

About the alliance with HotForex

With access to our numerous possibilities to process payments in Latin America, HotForex wants to serve its customers in Brazil, Mexico and Chile better and is able to acquire a larger user base in those countries. Apart from that HotForex can work on expanding the business to more countries as we offer all major forms of payment in other countries like Argentina, Colombia, Costa Rica, Ecuador, El Salvador, Panama, and Peru. The main advantage for partners of PayRetailers is the access to the cash-based payment types which are still the main pillars of money transfers in LATAM as well as access to all major modern APMs.

When choosing PayRetailers as a partner a company is able to cover the Latin American markets and strengthen the operations in the region. The HotForex-platform is being used by people all over the world and it was just the next logical step for them to partner with a PSP that is able to meet their complex requirements. We delivered on our promises and the whole process from first contact to roll-out went very straight-forward. Our team knows the ins-and-outs of the business and our solution is easy to implement with just a single API to be used by the client.

It is important for a company that wants to enter the Latin American market to have a reliable partner with expertise in the local markets. It is not enough to offer the generic payment options like classic credit card solutions, modern e-wallets or solutions like Google or Apple Pay. Especially the Brazilian market hosts 68% of the banked population in LATAM that has credit cards, while only 19% of it is able to make cross-border payments. The neighboring countries are working their way up as well when it comes to the bankarization of the population. In LATAM cash-based services play a huge role in the commercial life of the people. However, projections show that the still most popular cash-only focused service, Boleto Bancário, introduced in 1993, in Brazil will be disrupted in the coming years as more and more people either switch towards digital systems or previously unbanked skip usage of the service entirely. The Covid-pandemic shows an accelerated trend towards digital payment systems in LATAM markets and PayRetailers sits at the forefront of the wave.

If you want to start your expansion to LATAM as well, please contact us. With our more than 250 modes of payment, we can <.,help you tailor the perfect payment suite for your operations.

https://financialit.net/content/payretailers-helps-companies-offer-payment-solutions-latam-region

PayRetailers helps companies to offer payment solutions in the LATAM region