What is a White Label Bank?

What Is White Labeling in Financial Services?

White labeling is where companies take third-party manufactured products, throw their own label or brand on it, and market the products as their own. It happens everywhere. You might not know when you encounter a white-label product, but you’re not supposed to know. That’s entirely the point. Sometimes called private-labeling, white-labeling gives brands an opportunity to create entirely new customer experiences without all the work of—well, you know—actually creating new products.

So, what is a white label bank? Well, a white label bank is a Banking as a Service (BaaS) provider that uses a bank’s application programming interfaces (APIs) to build its own white label banking platform financial products over a licensed bank’s existing infrastructure.

Now, there’s a lot of information packed in there. So, let’s take a different approach.

Think of any finished product. Seriously, go for it! It could even be a bank—or a fintech, as we’ll explore shortly—but it could be a line of clothes or beauty products. Really, just about anything. Now, imagine dipping that finished product into a big bucket of white paint. When you pull it out, it’s basically an entirely new product that’s free for you to make it your own! You have complete creative control over how you’re going to influence its existence in the market—once the paint dries, of course. So, you throw a flashy new logo on your product, create some wonderful branded customer experiences, develop an Instagram following and community around it. Maybe you even make socially responsible, ethical decisions that influence the way that product is produced, doing everything in your ability to ensure your new thing—your very own white-labeled Seussian Thneed—reflects your brand’s commitment to a more sustainable world.

Pretty neat stuff.

This is the idea behind white-labeling. You take a complete product, and you brand it to make it your own. You can see how a white-labeled, third-party product quickly becomes your product. Of course, this isn’t entirely literal—you don’t actually dunk anything into a bucket of white paint unless you want to either ruin it or make it white. White labeling is about putting your brand on something and making it better.

That’s what white label banking is all about, too.

White-labeling gives brands the opportunity to explore new revenue avenues, providing complete control over branding and customer experience, while also offering a high level of control over aspects of production, pricing, and profits. For new brands, it offers even more: It gives them a finished product as a starting point to make it their own.

White-labeling is everywhere. It’s especially prevalent in the retail industry, where major retailers often throw—or very carefully place—their own brand onto a product. In many cases, they’ll even reach out to third-party manufacturers for help in creating an entirely new product that they can brand and throw onto their shelves in order to build entirely new customer experiences.

Although white-labeling is a common strategy in retail, it’s only just becoming an increasingly popular strategy in banking, particularly among fintech and neobanks. In fact, there’s an open banking model that enables white label banking called Banking as a Service (BaaS), and it’s the technology stack where white-label banks and neobanks are made.

White Label Banking is Also Called Banking as a Service (BaaS)

Banking as a Service—or BaaS—is the trendiest new term used for white-label financing/banking. The two terms aren’t synonymous, but they’re pretty close. You see, white-label banking has been around for a while now, but the BaaS model makes it even more relevant today, as the industry edges its way into open banking and a future of consumer-directed finance here in Canada. You can think of BaaS as a kind of pre-packaged, white-label banking framework. The basic BaaS model allows brands to build innovative financial services solutions into their own customer experiences using modern API-driven platforms.

Ultimately, BaaS is a model for creating white label banks.

Designed as a three-layered technology stack, the typical BaaS stack involves three players: regulated banks, fintechs, and brands. Regulated banks act as the foundation of a BaaS solution, providing the banking license, and handling all the regulatory and legal obstacles. Fintechs service providers occupy the middle layer of the stack and handle the as-a-service component. And brands occupy the top layer of the stack, controlling things like the customer experience, the branding, and often the user interface and digital experiences.

In this model, brands are considered the white-label-er, so to speak. But with white-label banks, those top two layers of the BaaS stack are usually controlled entirely by the middle player: the fintech.

Neobanks Are Fully Digital, White-Label Banks that Occupy the Top Two Layers of a Banking as a Service (BaaS) Stack

Although white label fintech typically provide the as-a-service middle layer, they will sometimes occupy the top two layers of the BaaS technology stack. Partnering only with a licensed bank that handles the legal and regulatory legwork, these fintechs provide the as-a-service financial products while also owning the brand and customer experience. These important white label fintech players are typically known as neobanks.

Neobanks are 100% white-label banks.

Neobanks maintain a digital-only presence focused on highly specialized financial services and customer-centric experiences without all the overhead of physical branches through white label banking platform. They create their own bank brand, connect to a licensed bank using APIs, and develop their own financial products and customer experiences.

In simpler terms, they take a bank, dip it in a bucket of white paint, and make the banking experience better.

Is White Labeling, You Know, Dishonest?

Now, wait just a minute! Isn’t this white-label banking thing just branded trickery? No, not at all!

At least, you shouldn’t think of it that way. Banks aside, think of all the steps involved with manufacturing any product. Components of any given product are often made by different manufacturers in different locations around the world. Think of any given supply chain required to make a branded thing: It’s only the end brand that gets to control that thing’s place in the market. A neobank doesn’t see a licensed bank as a finished product. In fact, many of them just want to avoid the arduous process of becoming a chartered bank. This is really just an alternative. They see a white-label bank as a better starting point for creating the innovative, branchless banking experiences they’re envisioning.

In a way, white-labeling kind of happens with everything. And in financial services, white-label banks or white label digital banks aren’t trying to replicate the traditional banking model. If anything, it’s usually the opposite.

They’re trying to change it. They’re trying to make it better.

And BaaS is their bucket of white paint.

Sources:

https://www.businessinsider.com/private-white-label-banking#:~:text=White%20label%20banking%20is%20another,financial%20products%20with%20existing%20infrastructure (Retrieved October 21, 2020)

https://info.11fs.com/hubfs/Banking%20as%20a%20Service_reimagining%20financial%20services%20with%20modular%20banking.pdf (Retrieved September 25, 2020)