White labelling could be a turning point for banks in bridging the gap between the services they offer and what customers demand.
As banks transform and drive change, a new wave of private labels is emerging. This is not a new phenomenon. Third parties have been selling banking services off the shelf and labelling them as their own for years. But the stakes are rising – along with the competition. FinTechs and other players with more innovative apps and technology-driven models are competing to provide a better customer experience. These white label or private affinity groups are ideal partners for those who wish to gain a foothold in the financial sector but are not in the core banking business.
White label banking is an efficient driver of growth and an exciting business model that unlocks tremendous potential for open banking. A bank can partner with numerous other private labels to offer a wide range of services from credit cards and call centers to commercial banking. In its most radical form, the bank has no direct contact with the customer.
The advantages of white labelling
Banks make money through shared agreements, which are fully licensed. While the bank only offers specific products or services, it is supported by operations and technology that are compliant with banking regulations. Since the bank assumes the compliance risk, licensing fees and the cost of maintaining the business, it is likely to charge a premium for its services.
As a producer, a bank benefits by having the option to provide a full end-to-end banking proposition or focus only on specific products or markets on a white label basis. High levels of automation result in lower costs, less employees and fewer errors and complaints. The bank can deliver efficient and technologically-advanced capabilities that are faster, better and cheaper than what could be developed in-house.
Why this approach makes sense
White labelling is a proven concept that enables other providers to market financial products under their own brand name. At the same time, it supports banking customers with the operational infrastructure, technical expertise and innovative solutions that they demand.
The bank’s main income is derived from third-party fees. However, it is important to note that managing relationships with third parties can be complex and there is a limit to how many relationships one bank can have. There is a fine line between developing a platform that serves one bank versus another that requires different products and ways of doing business. One advantage for banks is that they have access to a pool of customer data and can offer advanced analytical services that generate additional income.
Bank as a producer
White labelling is well established in other industries and could prove to be a turning point for financial services. It will be interesting to see how banks will influence others and deliver on a broader scale than they do today. If they decide to own a part of this value chain, their success will be defined by the quality of services they render.
In working with third parties, banks need to adjust their business models so that the services they offer are not merely add-on activities. EY can help establish a bridge between what customers demand and what banks offer to ensure that producers understand where there is traction in the market.
EY has identified five ways that banks can reshape their future: as an experience, marketplace, service provider, facilitator and producer. This article is part of a series that highlight the features and benefits of each. Under this new direction, none of the five ways are vertically integrated. Banks could adopt one approach or a combination that will help them truly differentiate their bank from others.