Latin America’s Banking as a Service Market to Reach $2B in 2024

Latin American businesses increasingly embrace Banking-as-a-Service (BaaS) as a tool to scale financial services swiftly in today’s digitally-driven economy. As non-bank firms race to bolster their digital banking capabilities, the regional BaaS market is set to soar past the $2 billion mark this year, a recent study showed, marking a significant milestone for the nascent sector.

Amid the aftermath of the COVID-19 pandemic, Latin America has experienced a remarkable uptick in digital payments. This surge has seen millions of individuals embrace online banking, leading to the ascendance of fintech firms as prominent players in Latin America’s evolving financial sector.

Consequently, there has been a notable increase in demand for companies offering banking services. Neobanks, fintech startups, and non-financial enterprises are aggressively expanding their digital banking capabilities to capitalize on this market opportunity.

“One of the most significant factors impacting the growth of BaaS is the enormous expansion of the fintech industry in Latin America,” says José Marcos González, Head of Business Development at Poincenot Tech.Studio, in an interview with Fintech Nexus. “Fintechs tend to be the most intensive users of this type of service since access to the interbank system is fundamental to their model.”

Banking as a service to reach $2B this year

The Latin America Banking as a Service (BaaS) market is projected to exceed $2 billion this year, with further growth anticipated in the years ahead, reaching $3.3 billion within the next five years. Market research firm Mordor Intelligence forecasts a steady 7% annual growth rate for the regional industry, driven by rising demand from non-bank businesses seeking to integrate financial services into their offerings.

“The growing digitization of financial operations in Latin America is driving demand for flexible and scalable solutions that can easily integrate with existing systems,” says Julián Colombo, CEO of Brazilian fintech firm N5 Now, to Fintech Nexus. “In a region where technological infrastructure can be uneven and financial resources limited, BaaS offers an accessible and ready-to-use solution, allowing companies to avoid significant investments.”

Julián Colombo, CEO and founder at N5.

Banking-as-a-service is a model in which licensed banks or fintechs incorporate their digital banking services directly into the products of non-bank enterprises. The report found that large organizations account for more than 50% of the demand in Latin America. Still, experts argue that smaller companies are poised to benefit the most from this novel trend.

Latam SMEs to benefit

“Small and medium-sized enterprises in the region can significantly benefit from simplified access to financial services,” says Colombo. “Many face significant challenges due to regulatory restrictions, lack of credit history, or limited resources. BaaS offers a viable alternative without investing in their own infrastructure.”

To be sure, the market is still in development and does not yet present significant size as in other regions. Still, specialists anticipate sustained growth in the coming years, albeit mostly from the financial industry initially.

“The fintech segment is clearly the one driving the BaaS model to a greater extent today, as their business often relies heavily on the ability to connect with the financial system,” says González from Poincenot. In 2018, the fintech partnered with the Argentinian bank Industrial to provide BaaS services to fintech companies, offering open APIs to the local ecosystem. “(Demand from) traditional companies is still in a much earlier stage,” he added.

Brazil to regulate Banking as a service in 2024

Brazil’s central bank will introduce regulations for banking-as-a-service this year as part of its ambitious financial innovation agenda.

Renowned as a trailblazer in Latin America, the regulator is developing a dedicated framework for the sector. “It’s a new initiative that we have discussed with the financial system,” said Otávio Damasso, Regulation director at the entity, in an interview with local media. “We need to understand better the limits and interactions between regulated entities and providers.”

Brazil has experienced a dramatic surge in digital payment transactions in recent years, largely attributed to the widespread adoption of the instant payment system Pix. This platform has propelled Brazilians into the digital realm in unprecedented numbers, establishing itself as one of the foremost payment methods nationwide.

The regulator is reportedly working on a specific norm for BaaS while moving forward with other objectives. It is advancing discussions on potential frameworks for leveraging Artificial Intelligence and tokenization alongside developing its own Central Bank Digital Currency, known as “Drex.”

  • David Feliba

    David is a Latin American journalist. He reports regularly on the region for global news organizations such as The Washington Post, The New York Times, The Financial Times, and Americas Quarterly.

    He has worked for S&P Global Market Intelligence as a LatAm financial reporter and has built expertise on fintech and market trends in the region.

    He lives in Buenos Aires.