In Part 1 of our series about Banking as a Service (Baas), we discussed how new cloud-based capabilities make banking IT more cost-effective, easily integrated and widely available to everyone.
As banking continues to embrace innovative fintech products, the financial sector is undergoing a disruptive "unbundling" of products and services. On one hand, this unbundling is creating the conditions necessary for the emergence of white label banking, wherein financial firms can partner with fintechs to utilize a whole range of service and product suites. On the other hand, BaaS allows for the rapid, on-demand and comprehensive deployment of such products.
This confluence of white label financial options and BaaS capabilities will continue to drive robust digitization in the banking sector to the point where who you bank with will be less important than the overall suite of financial products at your disposal.
BaaS and white label banks: The perfect relationship
"Providers of digital wallets and peer-to-peer lending offerings are reshaping financial services."
Traditional banks that once offered a wide range of services are increasingly partnering with fintech companies that provide more specialized and innovative plug-and-play, multi-channel and easy-to-use banking solutions. These providers of digital wallets and peer-to-peer lending offerings are reshaping financial services and breaking down the walls between banks to the point where customers may end up utilizing several different banks, without even realizing it.
The synergy created by BaaS and white labeling are going to lead financial firms deeper into digital territory and accelerate their entry into new markets.
VentureSkies elaborated on the new structure successful banks and fintechs will need to embrace to remain relevant and stay competitive in this evolving sector. This structure consists of four levels, layered upon themselves like an onion:
- The licensed bank – This structure's core, the licensed and regulated bank will continue to provide financial products and maintain regulatory compliance.
- The white label provider – A layer up rests the white label providers. Banks with technological sophistication or other entities that rely on a licensed bank's core facilities to build new products for front-end service providers can fill this role. This is where the unbundling of services takes place, as customers can use these agile product offerings to essentially pick and choose what they want based on their specific banking needs.
- Fintech companies – The next layer is where fintech service providers enter the game. These tech companies build the digital interface and implement the agile product offering and its delivery. Their unique selling proposition involves creating a frictionless platform for customers to use for their banking needs. Further, as banking becomes more unbundled, financial firms will need to rely on fintechs to deliver advanced analytical and authentication tools for greater customer insight and enhanced business value.
- Retail distributors – The top layer on this structure involves the distributors, such as large supermarket chains or telecommunication companies. These companies, with their strong local presence, have the ability to tap into their existing customer bases and distribute these white label, cloud-based financial products.
While this classification is not carved in stone, the concept provides a framework for how to exploit the core competency of the individual layers and customize a solution that best serves customer demands.
Where will the banks be?
With so many different players collaborating on digital plug-and-play financial solutions and open architecture software, it begs the question: Where will the actual bank branches exist?
More likely than not, banks will no longer need a brick-and-mortar branch with tellers to help their customers. Through an arrangement of mobile apps, robo-advisors, digital wallets and an API-led digital ecosystem, individual banks will step into the background as white label providers of financial products while maintaining regulatory compliance.
Meanwhile, customers will instead have more robust options for picking and choosing which services and products best suit their needs so they can pursue the financial strategy most aligned with their goals.
Check back soon for Part 3 in our series on Banking as a Service: Leveraging BaaS to go digital.