Beyond White Label Banking to Banking as a Service

White label banking is evolving from how it used to be a single-threaded product offer, to a broader and deeper banking as a service or embedded banking using modern technology.

This concept of buying a set of pre-built technologies and services to enable a non-bank to provide financial products has caught the imagination of the industry for several years now. Part of this reflects how the industry comes with a lot of old legacy technology and a desire for a quicker route to switching on new capabilities, as well as advances in what is possible with modern technology solutions.

A few months ago, an announcement by the UK’s Starling Bank demonstrated how far this concept could go. Engine by Starling is the bank’s financial software as a service offering. This is a modern banking platform that can be used to run a bank from scratch.

Although launched in 2022, it was not until November 2023 that Starling announced how Engine would enable two new digital banking services internationally. Salt Bank will be Romania’s first digital native bank, thanks to Engine, while Australia's AMP Bank will set up a new digital bank for SMEs using Engine.

To date, most white label banking has been about delivering financial solutions in areas like credit or insurance for non-banking institutions such as telecom or retail/ecommerce companies.

But the Starling story shows how white label banking is evolving from providing a financial product as a service to offering a whole platform of banking services to another bank or company that wants to set up a bank. The advantage of this approach is that a brand can become a bank with no technical barriers to launch services while retaining its own identity and avoiding the risks of developing the technology themselves. Of course, there are necessary regulatory hurdles but the ability to harness state of the art pre-built technology means a new banking service can come to market relatively fast, for example, Salt Bank expects to go live in next 12 months or so.

The foundation for this white label banking revolution is technology that uses open banking principles and makes sharing data much easier to do. It also provides a technology platform that takes advantage of cloud computing to be super scalable and secure. In fact, this also aligns with what is happening with enterprise application technologies more broadly with generative AI being embedded to help with building new applications without less technology skills needed or embedded in processes to improve their efficiency. All of this leads to the ability to radically improve customer and employee experiences in any banking process.

The great advantage of banking as a service is how it offers a much-streamlined set of processes. This is clearest when you consider how much banking as a service solution can slash the costs of customer acquisition. A great article by consulting practice Oliver Wyman set this out very clearly a few years ago. They argue that the usual cost of customer acquisition for a financial institution can be as high as $200 per customer; with a banking as a service platform that cost drops to between $5 to $35 per customer.

While it enables a non-bank to turn on the taps for financial services, the adoption of banking as a service platform does not guarantee commercial success unless it is focused on improving customer engagement and being able to scale once operations inevitably do involve more people and exception management. This is where the most successful deployments of white label banking on the grandest scale will benefit from how the platform integrates with both central decisioning hub technologies that can know the next best action to be taken with an individual customer at that moment of time, as well as workflow automation capabilities to maximise process efficiency. Such an integration is going to be key if the brand fronting up the banking service is using its own staff to interact with customers. These colleagues are going to need a system to support the decisions, complete the work, and provide advice to their customers.

White label banking has come a long way. As major banks complete some of their own digital transformation journeys might we see some of them step into this field of offering banking as a service offers? Time will tell.