Banking the Unbanked: How Brazil Is Using Open Banking to Tackle Financial Exclusion
Dianne See Morrison written for University of Oxford Executive Education
One of the great promises of open banking is its potential to tackle financial exclusion — and with it, poverty. In Brazil, the World Bank estimates that 45 million of the country’s 210 million citizens are unbanked—meaning, they have no access to a bank account, and in turn, to credit, savings, or the numerous other financial services that help build security. Without these, home ownership remains a distant dream. Retirement savings never start. Education stays out of reach. A business idea stays just that—an idea. The unbanked remain locked out of the more stable lives that the banked enjoy.
Nowhere has a more tantalising picture emerged of what the future might hold for the world’s financially excluded than in Brazil, where the Banco Central do Brasil (BCB) is leading an ambitious push to widen financial inclusion through open banking. For decades, Brazil’s banking sector has been tightly concentrated, with the country’s top five banks controlling 82% of the market. This dominance has been hugely profitable. In Q1 2019, despite political turmoil dragging down the economy, Brazil’s top four banks saw their earnings surge 17%, according to Bloomberg. But for consumers, and especially the unbanked, it has meant limited competition, high fees, and little financial innovation, leaving millions locked out of the formal financial system.
As in other countries that have embraced open banking, Brazil’s goal is to inject competition into its financial services sector by requiring banks to share consumer data—but only when authorised by consumers— through open APIs with third party providers. But this shift is not just about competition. By putting Brazilians in control of their financial data, open banking not only opens the market to new players and lowers costs but could also help consumers make better financial decisions.
For example, someone who consistently has as little as 10–20 reais left over each month might not bother saving such a modest amount. But if their bank—or a new fintech—uses open banking data to highlight this pattern and nudge them toward a savings account, they might instead start putting that money aside, especially if it is as easy as a click to save. A similar microsavings model has proved highly successful in China. Ant Financial’s Yu’e Bao, which translates in English to “leftover treasure,” allowed its users to automatically sweep as little as 1 yuan, or .16 USD, into an investment fund. By 2017, it was the world’s biggest money market fund with $165.6 bn under management.
The Central Bank’s Early Boost to Open Banking
At a time when the uncertainty of the pandemic could have stalled innovation, the BCB wasted no time in rolling out two of its most transformative digital initiatives. With smartphone penetration topping 69%, Brazil was well-positioned for a mobile-first financial shift. To safely and efficiently distribute emergency aid payments, the government, through its state-owned bank, Caixa Econômica Federal, introduced a digital wallet called Caixa Tem, available on both iOS and Android. By May 2020, the central bank had distributed two installments through Caixa Tem, reaching 107 million users, with an estimated 30–40% of payments going to those previously unbanked. By October 2020, Caixa Tem had amassed 70 million users and was planning an initial public offering in the US in early 2022.
More importantly, Brazil’s unbanked and underbanked populations now had a mobile wallet to receive and store digital cash—a crucial first step toward broader financial inclusion. Building on this shift, the BCM next launched its own open banking instant payments platform, Pix, in November 2020. Free to use, Pix allows real-time money transfers for both consumers and businesses. Critically, it also opened up digital payments to those who did not hold debit or credit cards.
At launch, Central bank president Roberto Campos Neto stated, “Society demands something that is fast, cheap, safe, transparent and open.” Brazilians agreed. By December 2020, Pix had amassed 33 million customers. Two months later, the payments platform was handling 78% of all bank transfers in the country. Built on open APIs, it laid the foundation for embedded finance services, including microcredit.
Rather than just expanding payment options, Caixa Tem and Pix brought millions of underbanked and unbanked Brazilians into the formal economy. More importantly, their instant popularity proved not only the urgent need for such services but also the economic benefits of serving the unbanked—and the opportunities open banking could create for new market entrants.
A Game Changer
In the Mr Open Banking podcast episode, “The Great Unbanked”, which explores the impact of open banking in Brazil, host Eyal Sivan asks Carlos Kazuo Missao, director at global IT supplier GFT Group, how the market viewed the central bank’s control of the country’s payment system—a direct intervention that market-led supporters might see as crowding out private sector initiatives.
Yet for millions of unbanked Brazilians, the government’s role has been less about market interference and more about creating a viable, functional alternative to cash. While privacy concerns were raised—especially among middle and upper-class users—about the central bank’s ability to track peer-to-peer (P2P) payments, unbanked Brazilians were far more willing to cede some privacy in exchange for a safer, more reliable way to handle their money.
“If they have a safer, good alternative to [physical] cash, they will adopt,” said Kazuo Missao. “They will be more open to giving access to their data for the benefit of a safer way to handle money.”
He also pointed out that all consumers are protected by Brazil’s LGPD data protection law, whether they are aware of it or not.
Finally, Kazuo Missao emphasised that for Brazil, these initiatives go beyond banking or fintech. By digitising payments, Brazilians have gained new ways to use their money and access to financial products more cheaply and safely. This shift means greater financial inclusion, bringing more Brazilians into the system while respecting their privacy, data rights, and physical security. If successful, Brazil’s open banking model could serve as a blueprint for other emerging economies, allowing more of the world’s financially excluded to enjoy the stability and the security of the banked—a shift Kazuo Missao calls “… a game changer for society.”
Written for University of Oxford executive education.