In 1997, a Tesco supermarket in Glasgow became an unlikely setting for a financial revolution. A representative approached a customer, Mrs. Mary, offering her a line of credit while she shopped for Christmas dinner ingredients. This partnership between Tesco and Scottish Bank marked one of the earliest examples of Banking as a Service (BaaS).
This model, where non-bank entities provide financial services, has since transformed how customers access banking. Today, it’s common to see small loans offered at checkout or insurance bundled with appliance purchases.
The Cost Advantage of BaaS
The rise of BaaS is closely tied to the high cost of acquiring new banking customers. According to Oliver Wyman, banks spend between $100 and $200 to acquire each new client. BaaS partnerships can reduce this cost by up to 80%, making customer acquisition far more efficient.
This cost reduction has fueled the creation of new financial products and markets. Digital platforms now routinely integrate financial services, allowing traditional banks to compete with newer models. In Brazil, the growth of payment institutions following Law 12.865/2013 and the rise of e-commerce created ideal conditions for financial services to be offered as commodities.
Regulation Catches Up
Brazil’s regulatory framework for BaaS was formalized with Joint Resolution 16/2025, which applies to financial institutions, payment institutions, and other authorized entities. This resolution overlaps with the regulations for Virtual Asset Service Providers (VASPs), as outlined in Article 20 of BCB Resolution 520/2025.
VASPs, which include commercial banks, exchange banks, investment banks, multiple banks, and the Federal Savings Bank, can operate in three categories: intermediaries, custodians, and brokers. These categories encompass various activities that can be integrated into BaaS arrangements.
For instance, VASPs can offer virtual assets through established banking structures, reaching customers who might not otherwise engage with them. They can also provide private key management for non-profit organizations and staking services for large clients holding virtual assets outside traditional banks.
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Conversely, VASPs can benefit from BaaS by segregating financial resources, a requirement under Article 28 of BCB Resolution 520/2025. This segregation can be achieved either within the VASP or through partnerships with banks or payment institutions.
To offer payment or deposit accounts, a VASP must obtain authorization as a payment institution. This process involves significant capital requirements and regulatory scrutiny. Joint Resolution 14/2025 sets a minimum capital of R$2 million per operational activity, rising to R$5 million for technology-intensive services. These requirements can total tens of millions of reais, making partnerships with established institutions a cost-effective solution.
Traditional institutions can also provide liquidity services to VASPs, acting as market makers or through liquidity pools in decentralized finance (DeFi) markets. These arrangements help stabilize asset prices and deepen market liquidity.
BaaS and Virtual Asset Service Providers (VASPs)
These services allow VASPs to attract investors seeking alternatives to conventional financial products, similar to how Tesco brought banking to non-traditional customers in the 1990s.
Liquidity Services and Market Stability
In DeFi markets, liquidity pools use smart contracts to manage tokens, providing users with access to trade within specific parameters. Providers are compensated for the opportunity cost of maintaining assets in these pools.
Regulatory and Operational Challenges for VASPs in Brazil
Virtual Asset Service Providers (VASPs) in Brazil face stringent regulatory requirements to offer payment or deposit accounts. Authorization as a payment institution is mandatory, involving substantial capital commitments and regulatory oversight. The process demands selecting specific operational activities and ensuring technological integration.
This shift requires VASPs to secure minimum capital and undergo a detailed structural review by the Central Bank, a process that can extend for months. These requirements can aggregate to tens of millions of reais, making partnerships with established institutions a practical solution to reduce costs and meet regulatory demands.
