BaaS modularity in the face of regulation

Banking as a Service emerges from a separation made possible by technology: on one side, the experience offered to customers; on the other, the financial infrastructure needed to make that experience work. A company became able to incorporate financial services into its journey without building the entire chain behind them, focusing on the interface, relationships with its audience and product development while using capabilities provided by authorized institutions.

This architecture helped reduce entry barriers, accelerate product launches and expand financial service distribution possibilities. At the same time, it created more complex structures, in which an apparently simple user experience can involve different companies, contracts, systems and responsibilities. To someone looking at the screen, everything may seem part of a single product; behind it, however, there is a chain that must work in a coordinated manner.

As long as everything works, this complexity tends to remain invisible. Problems appear when something goes wrong. Fraud, a block, an outage or a transaction failure brings to the surface questions the digital experience had pushed into the background: who actually provides the financial service, who is responsible for the customer, who controls risks and who should solve the problem.

BaaS regulation must be understood in this context. Joint Resolution No. 16 brought greater clarity to the Brazilian model by establishing roles, responsibilities, covered services and transparency requirements. The authorized institution remains at the center of regulatory responsibility, while the partner company can integrate these services into its own journey. The concern is understandable: the more fragmented a chain is, the greater the challenge of supervising it, assigning responsibility and ensuring customers know whom they are dealing with.

There is, however, a second dimension deserving attention. Modularity is not merely a technological characteristic of Banking as a Service, but an important part of its economic logic. Different providers can offer different capabilities in technology, products, pricing, service, risk management, availability or specialization. The ability to combine these capabilities helped form an ecosystem in which companies could build financial solutions without vertically reproducing all the infrastructure needed to offer them.

This logic also changes how companies choose their financial infrastructure. The decision no longer considers only who can provide a given service, but includes each supplier’s specific characteristics, technology, operating capacity, integration model, pricing and fit with the business. In this environment, the ability to combine or replace infrastructure components can be as relevant as the service’s availability itself.

Therefore, measures reducing fragmentation can bring important benefits for supervision and the definition of responsibilities, but their effects do not end there. Depending on how regulatory architecture translates into practice, impacts may also arise on competition, supplier switching costs and operational continuity. The greater the dependence on a given provider, the more relevant not only its quality becomes, but also the ability to replace it when necessary.

There is also a resilience dimension to this discussion. In a modular architecture, different suppliers can allow companies to distribute capabilities and reduce certain dependencies. In a more concentrated structure, operational simplification can facilitate controls and responsibilities, but also makes it more important to assess how an outage, a commercial change or even the need to replace a supplier could affect the entire operation.

This may be one of the most interesting aspects of BaaS’s current moment in Brazil. The discussion no longer needs to be framed as opposition between innovation and regulation, as if one had to choose between them. The challenge is understanding which model characteristics must be disciplined to increase security, transparency and supervisory capacity, while also identifying which must be preserved so competition, specialization and innovative capacity continue to exist.

Regulatory maturation is a natural part of any financial market’s development. After an initial phase marked by expanding models, experimentation and the formation of different contractual and technological arrangements, Brazilian BaaS is entering a stage in which governance, responsibility and transparency take a much more relevant position. This does not mean abandoning the architecture that enabled this market’s growth, but understanding its limits and the risks that must be managed more clearly.

In this process, simplifying the chain can facilitate supervision and clarify responsibilities. The care required is to avoid compromising, through that simplification, precisely the modularity that allowed BaaS to combine different capabilities, expand competition and build financial solutions more efficiently. Finding this balance will be one of the main challenges of Banking as a Service’s new stage in Brazil.

📌 Originally published in Cantarino Brasileiro