December 20, 2021
The fintech sector continues to grow globally; and is expected to be worth £380 billion in revenue by 2030. Global fintech investment surged from $87.1 billion in the second half of 2020 to a record $98 billion in the first half of 2021. Suffice to say, the industry is bubbling with activity, innovation, and exciting prospects. With many realising the opportunity that lies in wait, countless businesses have been opting to make the most of white label fintech solutions.
You might be wondering first of all, what are white label solutions? How do they apply to fintech? And finally, what is their importance to modern businesses?
Wonder no more.
“White labelling” means applying your own branding to a product developed by someone else. The owner of the product decides that it would be a great idea to make some extra cash by licensing to someone else the right to distribute the product under a new brand. The new brand also thinks it is a good idea, as it does not need to invent the product from scratch, test it and set up the whole production process. The buyer just takes it “off the shelf”, labels and packages it nicely, and focuses on making profits and keeping customers happy. This model has been known for decades in the retail sector, and more recently in tech.
The way it applies in financial services is slightly more nuanced, but not far off the base idea. To take it from the top, “white label financial solutions” is another term for “private label financial services.” In simpler terms, they can be understood as a pre-packed fintech interface that allow fintechs to create company-branded front-end and unique interface, often with the added benefit of an established regulatory license, compliance function, and backend technology. It is essentially a partnership between a regulated entity, which provides the base compliance and technology stack, with a business that does not have the same tech and compliance capability, but that does have great new ideas about how to monetise them or a brand strong enough to put that technology to good use.
In the banking world, white labelling evolved to a whole new sector called banking as a service (BaaS). Banking licences are hard obtain because they require strong capital reserves and stringent compliance standards. With that in mind, being able to call yourself a bank is reserved to an elite few. To solve for this, a new BaaS model has emerged, whereby banks provide their core banking capabilities as a service to non-bank entities. The service relies on Application Programming Interfaces (APIs) and, unless the bank has its own technical capabilities, it often involves at least one third-party API platform provider. From the customer’s perspective, the financial product (e.g. an account or a loan) is provided by the front-end entity (e.g. a fintech app), with whom they have a direct relationship. The BaaS model enables very fast product build cycle, allowing front-end fintechs to focus on what they do best: identify customer pain points, develop solutions and sell them. This allows businesses to create a fully-fledged financial offerings that can thrive within a notoriously regulated space.
The benefits of white label technology solutions have been widely recognised in the tech world for quite some time. They accelerate “go-to-market” and revenue generation by skipping the “reinventing the tech wheel” stage. Purchasing a solution that has already been tried and tested has become an attractive risk-reduction strategy, allowing emerging companies with great new ideas to focus on what they do best: developing new products, a brand, and a client base. The cost efficiency of these solutions allows emerging projects to fail fast and learn fast, pivoting quickly if an idea is not delivering the outcomes it promised.
This trend has naturally taken off in the fintech world. Starling Bank is a prime example. It’s highly customisable BaaS and payment services offering empowers a number Fintechs in the UK and Europe to offer bank accounts, debit cards and payments services using Starling’s banking license. Multiple banks now join the ranks, launching their own BaaS offerings.
White label financial solutions are reaching sectors beyond financial services; non-financial brands are starting to integrate financial services into their offering. This is called “embedded finance”. Think retailers offering BNPL (otherwise known as “buy now, pay later”) in-store, or insurance for high-value products as part of the checkout. When you last paid for your Uber ride or Starbucks coffee via their apps, did you pause to appreciate how smooth and painless it was not having to find your wallet? This doesn’t make Starbucks, Uber or the retailer a fintech. Is Lyft a bank? No, but it offers its riders a debit card and a bank account. This clever use of white label financial solutions significantly improves customer journey, increases customer satisfaction and retention, and brings new revenue streams.
As you can see, white label solutions have a powerful part to play in the growth of the fintech and retail sectors. Businesses get to retain all the value of the direct customer relationship, while outsourcing complex solutions to those who manage the underlying system. By using a white label solution that has already dotted the i’s and crossed the t’s, the front-end party is protected against the litany of risks and compliance obligations that come with supplying regulated financial products. Not only that, but the use of white label solutions means minimal input or expertise is required internally.
As such, white labelled financial products are an incredibly powerful vehicle to take businesses seamlessly into the modern digital world, where customers demand frictionless experience, endless choices, and always on and multi-device availability. The impact of this can’t be understated. It future proofs businesses that, in a pre-fintech world, may have been left behind.
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