In a world where financial services are rapidly evolving, and consumers demand more convenience, white-label fintech services could be the way forward.
With these types of white label banking or financial software solutions, companies can provide all of their customers with an exceptional experience without having to invest in time-consuming development work.
One such company offering this type of solution is Bitpanda, which provides white-label crypto, stocks, commodities, and ETF trading and investment options for financial services companies worldwide.
Sumit Bansal, Founder and CEO of TrumpExcel, believes even non-financial companies could start to choose fintech white-labelling services if they become an option. He said, "Unless you exclusively accept cash, you'll need to have a way to process credit cards, wire transfers, cheques, and other forms of payment."
The three options he goes on to suggest are;
- 1) Create your own system. This allows you complete payment control, but it requires a significant investment in engineering resources as well as regulatory knowledge.
- 2) Use a full-stack payment service provider (PSP) like PayPal, Marqeta, or Stripe to handle your payments. This is the quickest way to include payments right now, but it comes at a cost. PSPs include value-added services including authorisation, anti-fraud, and systems integration right out of the box. PSPs gather the majority of the data in exchange for these services. It's a more convenient alternative for startups, but they lose control of an important aspect of the consumer experience. If a user has difficulty with a transaction, they should contact the PSP's customer service team, not yours.
- 3) White-label fintech infrastructure using API platforms. A white-label platform connects your company with best-in-class service providers to wrap around essential payment processing. White-label platforms, on the other hand, enable you to provide your customers with a native-branded experience.
What exactly is white-labelling?
In short, white labelling, also known as private labelling, is an agreement between two parties where one party provides services or products to another party under that other party's brand name. The concept is actually older than one might think. The earliest known example of private labelling a product goes back to the Great Atlantic & Pacific Tea Company (A&P), rooted in the 19th Century.
At the time of writing, there are successful companies based solely on white labelling, such as Dollar Shave Club, which sold for $1bn USD in 2016. It's a subscription service for men's grooming and lifestyle items and sources its branded products from South Korean razor manufacturer Dorco.
So what does this have to do with fintech?
For one thing, it means white label fintech services are not only for small business owners looking to save money on starting a new company, but they're also perfect for established businesses looking for an edge over their competition while saving time and resources.
According to Girish Redekar, Co-Founder at Sprinto, "Digital technologies are democratising information across industries, allowing for more competition and innovation. As a result, the tendency toward 'open access' will only grow in popularity. For the past few years, the open banking trend in the banking industry has been spreading globally from its epicentre in the United Kingdom."
In essence, a white label fintech service can be thought of as a partnership between a company and a financial institution. They share responsibility for providing financial services without having any legal ownership of each other's assets or liabilities. It's a win-win situation for companies of all sizes to offer their customers valuable services without having to worry about the speed bumps associated with developing software from scratch.
What are the advantages of private labelling financial services?
White labelling fintech solutions offer companies the ability to provide services such as virtual accounts, payments, credit facilities, stockbroking, digital wallets or even a combination of all those as mentioned earlier under their own brand name while leveraging on another company's technology stack. In addition to this, white-label fintech solutions can offer a company the ability to manage risks and comply with all necessary policies.
"This option has a number of major benefits," added Sumit, "Fees are frequently lower than those charged by PSPs. Payment operations are automated with white-label payments infrastructure, which reduces your workforce. Instead of depending on a one-size-fits-all solution, you may personalise authorisation rules for your specific organisation or vertical. You get control over the customer support experience, including the capacity to deal with chargebacks and remediation, which is a delicate subject."
At its core, white-label fintech services mean faster product development cycles by allowing businesses access to an established platform that has already been tested in the market. It also allows financial institutions or companies of any size to provide customers with financially centred digital products using their own branding.
"Through our Banking coverage area, Insider Intelligence gets ahead of trends such as private label financial services. This vertical, which is tailored for top financial services decision-makers, covers digital transformation all across the industry, including open banking and BaaS, mobile and online banking, consumer and corporate banking, digital account opening, and neobanks," concluded Girish.
The question around white label ethics and regulations
The ability to roll out new services at a near-instant rate means ethics and laws can be overlooked, something that is of particular concern in the financial world. Service providers must be regulated in accordance with applicable laws where such compliance is required.
Furthermore, a banking license will be necessary if the company plans to provide certain payment services, including the acceptance of customer deposits or withdrawals. It also gives consumers better protections, such as the Financial Services Compensation Scheme (FSCS) in the UK, which guarantees to refund customers their money up to £85,000 worth of deposits.
For example, suppose a company offers its customers online savings accounts via white label fintech services. In that case, they are required to produce documentation proving their compliance with anti-money laundering (AML) and know your customer (KYC) legislation, regardless of whether or not they are using their own branding.
"Although private label financial services and BaaS technology are not new to the market, firms that get involved today will still be ahead of the curve when regulation becomes widespread. The Competition and Markets Authority of the United Kingdom has now enrolled nine of the country's largest banks and building societies in its Open Banking Directory, with more to follow. It won't be long until other countries follow suit and enact their own restrictions," added Girish.
But more than anything else, it is crucial for companies and service providers alike to understand that licensing requirements are different across countries; some may be stricter or looser depending on how businesses are structured.
What are the risks of using white label fintech services?
There can be some drawbacks to using white label solutions in certain circumstances, but only if a company misuses them. The first risk comes from not developing their own technology and instead relying on someone else's platform, which means they'll have limited control over how things are actually done.
The second risk is that there may be a lack of features people need to run a business, or the actual providers might not have built the APIs yet if it's a new product on the market. In some cases, white-label solutions can also contain bugs and security vulnerabilities, leading to data breaches and other problems down the road.
In conclusion, any organisation may profit from a business model offering white label fintech services. The rebranding method has shown to be effective in other sectors and often gives consumers an excellent experience at the same time. Nevertheless, it is critical to prioritise regulations, corporate integrity and legal compliance in addition to paying attention to the specific risks involved before taking a step.
- Sustainability LIVE Net Zero: Sustainable Finance InsightsSustainability
- FinTech LIVE Dubai: Saurabh Mahajan, Prudential FinancialFinancial Services (FinServ)
- EPAM: 96% of Consumers Happy With AI in BankingBanking
- IBM: Finance and Insurance is Second-Most Attacked IndustryFraud & ID Verification