The term “white label” has been predominant in our society since a long time. In very basic terms, it is simply the practice of one seller buying a product from another seller and giving it their name. Let us look at what it means in financial terms and why banks are moving towards it now.
What is a currency white label?
First coined in the times of vinyl records, the term while label has been adopted by banks now to front other financial institutions which use their services. White labelling in banks is mostly used for foreign exchange services, usually with respect to a trading software or platform or additional services that are already performed by the bank independently.
For example, when banks enter into a partnership with independent currency companies. These currency companies carry out their transactions of currency exchange through the banks and make use of the technology and resources of the banks to provide a better service to their customers
Flow of foreign exchange transactions in white label collaboration
How does currency white labelling help a bank?
The main reason for white labelling gaining popularity in the foreign exchange business is because it benefits both currency companies as well as the banks. For banks, it saves them the cost of developing a currency company to tap the foreign exchange market. They can enter into a collaboration with an already established currency company having a considerable user base. By using this method, they get access to traders and common users who stick to the currency company they have tried and tested over time. Even if the banks decide to open their own currency company, providing other companies with a white label increases their business and brings more revenue. This will also prove beneficial for an average foreign exchange trader as trading platforms will become more integrated with each other.
Although there are many benefits of currency white label, it can prove hazardous for a currency company or the banks in case of a faulty settlement. Banks need to keep a check on the proceedings of the currency company and make sure that settlements of currency are being done in a proper manner. They should also check backgrounds of the currency company they collaborate and make sure that they are reliable.
