What happened: The Brazilian regulator announced a public consultation to regulate banking-as-a-service (Finsiders Brazil). Like in many other countries, the concept has taken off over the past few years in Brazil. Banking-as-a-service is not only relevant for embedded finance but fintech in general. It allows companies without a licence to offer financial services in partnership with licenced providers. Receiving and maintaining a licence is costly and time-consuming; thus, the concept of banking-as-a-service can be beneficial for all parties involved. However, the devil lies in the details and very often these partnerships are not properly set up. The Brazilian regulator highlights examples of un-regulated providers offering banking products in partnership with a regulated provider but not making this clear to their customers or other instances where providers offered payments via the popular PIX network without the required account structures (Finsiders Brazil).
My comment: There is a strong call for deregulation in Europe and this may be in many instances appropriate. But when it comes to embedded finance and banking-as-a-service, I believe regulation can be very helpful. Consumers need to trust providers of financial services and this is much harder for companies to achieve if have never offered them before. And one black sheep can destroy the work from a lot of providers with good intentions.
That being said, regulation can have many shapes and forms. And I do see a big risk, especially for embedded finance, when a new regulation is not fit for purpose. It gets increasingly harder for regulators to understand and follow new concepts in fintech and embedded finance. Thus, I hope this public consultation creates sufficient relevant responses and the regulator has the time and resources to study them appropriately.
