White label solution: The best of two worlds?

What are white label solutions in the financial sector?

Rapidly advancing digitalization is changing the Customer Expectations and Behaviors, lowers barriers to market entry and causes the lines between individual industries to blur. White label services and products have been used for years in many industries — from the food industry to the pharmaceutical industry. This concept is also used in banking and finance. The term “white label” essentially refers to a product or service that is developed or manufactured by one party and is marketed and sold by another.

In finance, white label describes the infrastructure and services that are manufactured, operated and provided to a third party for use by a third party. Since the sale of many products requires an infrastructure that, on the one hand, controls payment flows, digital subscription routes and the transmission of data in general, which companies from other industries usually lack, a white label solution offers an easy-to-implement open banking infrastructure. For example, BigTechs such as amazon Add products to the core offerings of traditional banks. Conversely, traditional banks also benefit from white label solutions from innovative fintech companies, which can meaningfully expand their existing range of products and services.

White label solution, also known as Open Banking Solution or Software-as-a-Service (SaaS), is one of the most important innovations for the overarching “Open Banking” approach, which has been gaining in importance for years. For consumers as well as for companies and investors. For example, executives who took part in a survey on payments and open banking believe that Acceptance and use of open banking APIs among consumers, will increase by 76% and 50%, respectively, over the next three to five years.

One KPMG study It also shows that the FinTech market is seen as an attractive investment: Global venture capital, M&A and private equity investments in FinTechs doubled in the second half of 2020. While around 33.4 billion dollars flowed into the FinTech market by July 2020, this investment amount rose by a further 71.9 billion dollars in the second half of the year.

How can banks benefit from white label solutions?

However, traditional banks and fintech start-ups do not necessarily have to compete for investments, market shares and customers. Instead, both parties can work together sensibly to shape the future of the financial sector together. Financial institutions in particular, which often still have a lot of catching up to do when it comes to digitization, can benefit from FinTech white label solutions. Because it has never been so easy for banks to buy white label services from other service providers: Be it in the area of IT security, credit transactions, insurance or even blockchain technology at digital assets.

The FinTech company itself does not appear to end customers. Instead, the range of products is managed under the brand of the traditional institute and fully integrated into its processes. For customers, it appears as though they are using their bank's services without an intermediary company.

Other benefits of white label solutions for traditional banks include:

• Expanding the product portfolio
• Benefit from the knowledge, technology and agility of the FinTech partner
• Save time and money by using existing services
• Short time-to-market phase
• Strengthen market position
• Widen the gap to competition
• Develop new sources of revenue

White-label solutions are therefore a good way for banks to quickly enter new service areas. When choosing a FinTech partner, however, attention should be paid not only to its products, but also to professionalism, trustworthiness and expertise in integrating the offering into existing, sometimes very extensive banking systems.

What are the benefits of Open Banking for customers?

For customers, white label and open banking offers have several advantages. Instead of having to set up a customer account with various banks, trading apps or financial service providers, they receive innovative solutions and products from a single source. And that at a banking institution they trust, some of which customers have been working with for decades. Consumers don't have to get used to new interfaces, contacts or processes first, but can stay with their “house bank” — and still use new products.

A white label solution is therefore both an efficient growth aid for banks and FinTechs, as well as an attractive — and regulated — way to satisfy customer needs.

In order to better protect consumers and promote competition in payment transactions, the second EU Payment Services Directive was adopted in 2015 PSD2 (Payment Services Directive 2) enacted. Among other things, it regulates the opening of the banking and financial world to third-party providers. PSD2 is redefining payment authorization across the industry and thus makes a significant contribution to simplification for banks and customers. This provides three main benefits:

• Regulated framework
• Security through secure customer authentication
• The ability for third-party providers to access account information

In summary, white label solutions are creating a new dynamic in the market that will permanently change the financial sector and offer both banks and customers a number of additional benefits. A practical example is the white label solution from Real value invest of Sparkasse Bremen. Digitized assets are available to retail investors via Sachwert Invest. Anyone can contribute to the financing of real estate projects starting at just 500 euros.