Could open banking be the key to democratising finance in developing nations ?
Carlos Kazuo Missao Open banking will be fundamental to driving financial inclusion in developing nations . In the past , credit scores have been a challenge to obtain in developing markets due to lack of credit history — with average or highranking credit scores even more uncommon .
This lack of information has made it difficult for banks to determine consumers ’ risk levels , ultimately preventing these consumers from accessing basic financial offerings .
With open banking , individuals and small businesses who previously struggled with this will have better access to traditional credit offerings , such as mortgages or loans , because banks will gain a more holistic picture of their financial profile . In breaking down data silos , banks will be able to estimate credit risk more accurately and then offer lower rates and better financial products . For example , in Brazil where open banking is already a mandatory practice for financial institutions , small businesses have seen interest rates drop by 2 %.
Nicolas de Genot de Nieukerken Open banking provides a gateway for financial inclusion by making it easier for financial organisations to develop new products and services that serve the needs of underbanked populations .
For example , one of the primary barriers to credit in developing nations is credit history requirements .
When looking to secure an initial line of credit , most people do not have any credit history and are often denied due because first-time borrowers are seen as a higher risk . This has created a gap in the market for products that service these populations with loans .
And it ’ s not just financial institutions that can expand their loan offerings through open banking .
Open banking also enables banks and financial institutions to engage in data sharing with non-banks , such as stores , which can then extend financing options to their customers as well .
For a small business farmer who needs a small loan on new agricultural equipment for their business , this means that they can go into a store and apply for that loan directly .
On the back end , the store can see the business owner ’ s financial history and cash flow in order to verify their risk profile , even if they have no prior credit history . This enhanced data sharing gives the store more confidence in the consumer ’ s risk profile , while the business owner benefits from a new credit offering .
74 March 2025