Full Stack Fintech vs White Label Fintech

Banks want to know:

“Are these Fintech startups going to eat our lunch?”

The answer, as always, is “it depends”.

It depends on whether the Fintech startup is a “we bring your lunch” type or a “we eat your lunch” type:

1. We bring your lunch. This is traditional Fintech, the modern version of which is a cloud delivered “white label” service. These ventures make no attempt to sell direct to consumers or business. The customer is always the bank or a Full Stack bank competitor; their brand is not visible to consumers and businesses. Examples are Yodlee, Xignite and The Currency Cloud.

2. We eat your lunch. These are also known as “full stack Fintech”. They are regulated financial services firms that use technology to sell directly to consumers and businesses. Examples include Lending Club, Ondeck and Transferwise.

As I look at the output of many accelerators, I see both types. There are more “we eat your lunch” types. However this is a high risk/big reward “shoot for the moon” strategy. Full stack Fintech requires lots of capital and a deep management bench. So very few make it.

The White Label strategy is lower risk and you can still build valuable businesses this way.

The key difference is regulation. Full stack ventures have to be regulated, white label venture do not. Full stack ventures also need to build a consumer brand and deliver a high quality service to consumers through whatever channels the consumer wants. However the binary question is – regulated or not?

It is tempting to fudge that decision. Most of the alumni of accelerators do not need to think about regulation, only the Fintech ones and they resent having to think about regulation. It is tempting to say “we can sell direct to consumers but stay away from the regulatory authorities”. The best reasoned case for that is this post entitled “Bitcoin and Regulation: Lessons from the Early Days of Skype”. by Michael Jackson, a VC at Mangrove Capital who speaks credibly from his experience building Skype. This POV appeals to Bitcoiners of the libertarian persuasion, but the Bitcoin ventures that are moving to mainstream consumer acceptance all have to be regulated. Telecoms is not the same as Banking. Losing my phone call is not the same as losing my money.

The other “it depends” part of the answer is:

“It depends on which part of the bank, we are talking about”

This is where Banks are having to adapt to the old Silicon Valley co-optition rules – in some cases you are competition and also partners. For example, Full Stack venture doing Lending may work with a bank where the bank provides loans into the network and also is a distribution partner. For another part of the bank, that Lending Full Stack vendor may appear as a straightforward competitor.


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