Follow on Google News

On April 12, I had the privilege of mediating a panel on the topic of “Banking as a Service (BaaS) and Artificial Intelligence” in the third edition of Digital Money Meeting. In this article, I summarize insights I show how these themes are connected to the transformations of the financial system and the credit market, which we have talked about quite frequently in this space.

In recent years, so-called digital accounts have gained ground in the financial services market and have been offered by companies in various sectors. Before that, it was common for retail companies to offer branded credit cards - the so-called private label - to their customers.

For retailers, these cards opened up the possibility of selling to consumers without using traditional means by passing on the credit risk; for financial institutions, they opened up the possibility of conquering new market shares and testing new lines of business. However, cards were only the first form of BaaS. The arrival of payment institutions and the trend towards digitalization have significantly expanded the possibilities for this industry.

Banking as a Service is the name given to platforms that provide the necessary infrastructure for companies in various sectors to offer financial services without leaving their core business behind. In this model, a company can offer its customer base services that were previously typical of banks or payment institutions and attach financial solutions to its core business, thereby increasing its revenue possibilities.

Previously, an organization wishing to enter the financial segment would have had to set up the entire technological structure and, more than that, adapt to all the regulatory demands in order to operate in this sector. With the “servitization”In the case of banking, this path can be shortened through specialized companies that are responsible for the technological infrastructure and have a regulatory license.

This has been possible thanks to the technological development experienced in recent years and the regulatory incentive for banking competition observed in Brazil, especially in the last decade. Consumers' growing support for the digitization of financial services - something driven by the pandemic - is an equally important psychosocial aspect in making this new way of offering financial services viable, since the face-to-face banking structure imposes prohibitive costs on the entry of new players. At the forefront of innovations such as Open Finance, and with the recent major regulatory effort, Brazil is seen as a promising market for the development of BaaS.

Looking to the future, the panel also discussed the benefits that Artificial Intelligence can bring to the financial sector, such as optimizing the processes of this entire industry, generating efficiency gains, as well as allowing institutions to get to know their clients better, offering more customized solutions. Alongside its benefits, however, there was a warning about the importance of carefully evaluating the use of Artificial Intelligence, always bearing in mind ethical concerns.

The projections for the evolution of BaaS include investment services, the provision of credit operations and the assessment of payment capacity, where credit bureaus have a great deal of expertise. And there was a consensus that the financial ecosystem before the pandemic showed a very different picture from today. Discussions that made sense a decade ago have been diluted by technological and regulatory advances. This is a process that will continue to change dramatically, and Artificial Intelligence has already shown that it will be an important vector for disruption.

Finally, I'd like to thank the panelists, who provided some very high-level reflections that were of great interest to the audience. Thank you, Pedro Bramont (Bank of Brazil), Felipe Carvalho da Silva (Banco Inter), Thiago Zaninotti (Celcoin) and Miriam Aquino (Momento Editorial).

Thanks for reading! Access other content at ANBC website.

By: Elias Sfeir President of ANBC & Member of the Climate Council of the City of São Paulo & Certified Advisor