From open banking to banking-as-a-service: regulatory challenges in the evolution of financial intermediation

Abstract

Over the past decade, financial innovation has moved from open banking, centred on consumer-permissioned data sharing, to banking-as-a-service (BaaS), which modularizes core banking functions through application programming interfaces. This shift allows fintechs and non-financial platforms to embed financial products seamlessly, reducing transaction costs and fostering innovation. Yet the 2024 collapse of Synapse in the United States exposed the fragility of this model when intermediaries operate outside robust oversight, leaving consumers without recourse and revealing liability fragmentation and regulatory blind spots. This paper distinguishes BaaS from open banking, open finance, and embedded finance, and maps leading global models-from bank-led infrastructures to middleware providers and BigTech ecosystems. A comparative review of the EU, UK, US, Singapore, and China shows that open banking regimes remain inadequate for the risks of functional unbundling. The article proposes a regulatory model centred on licensing, liability clarity, resilience, prudential standards, and systemic safeguards.