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Brazil’s central bank (BCB) has issued new orders clarifying that it does not tolerate third parties on Pix that circumvent the regulator’s oversight, potentially affecting payments business models, such as Banking-as-a-Service (BaaS).
In two recently published resolutions, the BCB has fine-tuned rules governing outsourcing relationships across Pix, which could have implications on how BaaS and white labelling work on the instant payment network.
When Pix launched at the tail end of 2020, the regulatory framework underpinning the central infrastructure allowed Pix participants to outsource activities related to Pix to third parties via contractual relationships.
The limitations of this outsourcing, however, opened the door for third parties to offer Pix-related services without going through the central bank authorisation process.
To address this loophole, the BCB issued new resolutions in December 2022 and February 2023, to ensure all parties offering payment services on Pix are subject to its regulatory oversight.
Under the new rules, Pix participants are explicitly banned from outsourcing payment initiation to a third party that holds a transactional account, such as a deposit or payment account.
This restriction was intended to address informal indirect participation in Pix, whereby a third party could offer Pix payment services without being approved by the central bank as a Pix participant, Alexei Bonamin, Marcus Fonseca and Pedro Eroles, partners at law firm TozziniFreire Advogados, told VIXIO PaymentsCompliance.
Additionally, the rules forbid Pix participants from outsourcing services to a third party that does not hold a transactional account and uses the Pix participating institution’s account to initiate payments.
This measure is aimed at preventing third parties from carrying out payment initiation without being authorised as a payment initiation service provider (PISP) by the BCB, the lawyers added.
“The BCB intended to regulate such situations in order to bring more security to the Pix ecosystem by having more control over the payment transactions using Pix and enhancing anti-money laundering and illicit transactions verifications,” Fonseca and Eroles pointed out.
Although the BCB did not ban all BaaS, white labelling or indirect participation in Pix, it did restrict certain sorts of contractual relationships between Pix participants and third parties.
For instance, the prohibitions may put limits on certain BaaS partnerships, depending on the model used, according to Alexandre Vargas, associate lawyer with expertise in financial services at Cescon Barrieu Advogados.
If a payment institution that is not a Pix participant uses the master account of a Pix participant, it relies on BaaS to offer Pix to end users. In this case, when it processes a payment, it is the name of the unauthorised institution that appears in the transaction, not the name of the end customer.
The BCB has now decided to prohibit these relationships, Vargas said.
White labelling may also be affected, according to the lawyer, although he noted that “it is the least concern for the BCB, because in these cases the central bank can see the end user and the only concern is about the user experience.”
“The fundamental question behind this issue is the following: Pix is a payment system designed to make end-to-end payments, from the payer to the payee, and with transparency for the regulator regarding who is the payer and who is the payee.”
“Any setup that alters this end-to-end configuration could potentially be a problem and should be analysed by the central bank on a case-by-case basis,” Vargas explained.
The bottom line of the two resolutions is that “when the payer and the payee are in Brazil, the BCB wants them to be identified.”
Commenting on the clarifications, the BCB said it monitors the various business models that have emerged on Pix and acts whenever necessary, “whether to ensure that those that bring benefits to users are viable within Pix's regulatory framework, with due security for the ecosystem; or to clarify the infeasibility of models that may involve insecurity, asymmetry of supply conditions or lack of transparency of information."
