Banking as a Service and White Label Banking: when what's important is not the bank
The transformation of the banking sector is an unstoppable process. The provision of financial services is changing and becoming services and platforms which can host new channels, products, associations and opportunities. And it's here, at the core of this sectorial revolution, where Banking as a Service (BaaS) and White Label Banking play the key role.
Clarifying the concepts of Banking as a Service and White Label Banking
The well-known communication guru of financial technology companies (fintechs) Chris Skinner gives an example which makes it easy to understand the concept of BaaS by comparing it to Software as a Service (SaaS). "SaaS is basically paying for applications as you use them, rather than buying them. These services used to cost you a fortune, but are now free or near enough. That’s where banking is going."
Businessman and cloud computing researcher Ulrich Scholten defines Banking as a Service as follows in the prestigious online publication Fintech Weekly: "End-to-end process, ensuring the comprehensive completion of a financial service, provided via the Internet on demand and managed within a specified timeframe."
It is about moving from the traditional model where the pieces are packages in a monolithical block to a dynamic system based on micro-services and APIs accessible through the internet. It's "APIficiation" of banking.
Companies (not necessarily banks) which provide this type of Banking as a Service and White Label Banking services are often the ideal outlet for fintechs. They start as Neobanks and then become Challengers. However, given how time-consuming and expensive it is to obtain a banking license, they choose the BaaS formula in view of reinforcing their future and even serving other banks, as argued in a blog post by José Manuel Navarro Llena, expert in marketing, professor at business schools and author.
For example, before getting a banking license, the German N26 (operates in 17 eurozone countries including Spain) used the white label Wirecard Bank to offer debit cards to its customers.
BaaS is an "opportunity." According to José Rider Jimenez, founding partner of PayThunder and WUL4 and an expert in collection and payment services, "while the world moves toward operating faster and digitally (saving time and money), when the payment process or the banking process itself is involved the digital process stops. Banks that manage to get involved and offer their services, not necessarily for free, in this new wave of digital services will gain more customers and become more competitive."
An example is his solution for taxis and public transportation: banks are offered a system whereby taxi drivers (bank customers themselves) can receive services from bank's customers (or third parties) and charge their fees through the bank's systems. It's always a win-win situation for the banks.
“Taxi drivers prefer to work with that bank because "it brings them customers;" the bank's customers can send for a taxi from the bank's own app and identify all of the charges; and the bank gets payment fees and offers the service itself. This same principle applies to a city app where, in addition to taxis, you can pay for any other service and the charges are collected through the bank's systems," explained Rider Jiménez.
Most fintechs are already using these technologies. Sectors such as microlending (Vivus,, Wonga, etc.), marketplaces (financial, real estate) and telecommunication companies among others have been using this type of service for some time and, most importantly, can rely on automatic and real-time processes, as told by Julián Díaz-Santos, CEO of UNNAX, company offering an API-based payment solution for Banking as a Service (BaaS) companies and fintechs.
White Label Banking enables new companies to provide financial services which improve their offering by using products from a white label supplier, and Banking as a Service facilitates on-demand, fast and complete performance of these services.
As explained by David Jiménez Maireles, Country Head of Raisin in Spain, both banks and fintechs can utilize these two options to create a financial aggregator and become the customer's point of contact and to reach partnership agreements to offer their products through third parties. These are two different albeit complementary strategies for banks and fintechs to grow and generate revenue.
A lot of companies have focused their efforts on designing a BaaS strategy, such as Wirecard, Lemonway and, naturally, BBVA, the best Open Banking in the world, which launched a BaaS service in the United States.
In the United Kingdom, Raisin, which compares more than 65 savings products, entered into a partnership with Starling Bank to use its APIs to open accounts for its customers, among other options. With Starling Bank's BaaS services, companies (including banks and financial firms) as well as retailers and brands are able to develop and scale new customer products (e.g. savings or checking accounts and debit cards) quickly and efficiently without going through long development periods and complex legal processes.
In Spain, Raisin kicked off its first partnership with the German N26 in 2017: N26 customers were able to arrange European deposits available through Raisin from the bank's app. "Since then, we have entered into different partnerships with other European banks so that they can offer our products to their customers," said Jiménez Maireles, Country Head of Raisin in Spain.
The CEO of UNNAX, Julián Díaz-Santos, lists Tink, Salt Edge, Plaid and Railsbank as the international leaders by offering a combination of several on-demand banking services, while in Spain "we're lucky enough to be the pioneers ourselves. Unnax is the first company of its kind in Spain," he stated.
The revolution of banking has a long way to go. As underscored by Jiménez Maireles, "this trend will grow even more in the coming years and the banks will focus on this aspect a lot. They will remove a lot of the existing barriers, the small print, complex usability, security concerns... One of the upcoming points of access to banks will be through virtual assistants and smart speakers so that the younger generations and the generations that not long ago were going to the branches can both manage their finances much more naturally."
Also, Díaz-Santos mentions that the PSD2 removes borders in Europe and creates a single European framework of action. At this level, companies such as UNNAX are particularly important since they enable the European interconnection between fintechs and regulated entities.
As stated by Artur Agostinho, an expert in digital transformation, it is essential to understand that banks will not be what's important; instead, what's important will be the services they can offer as banks to their customers, partners, other banks, fintechs or neobanks.
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