Evolution of the value chain in the European Union banking and payments sector

Abstract

The value chain within the banking and payments sector of the European Union (EU) is undergoing a profound transformation, driven by digitalisation, the proliferation of innovative platforms and the emergence of new business models. As a result, financial institutions are increasingly turning to third parties for the marketing and distribution of financial services, leading to greater fragmentation and specialisation in the sector. Among these developments, white labelling has emerged as a widespread business model, allowing regulated firms to distribute products and services under the brand of (often) nonfinancial partners. According to recent data from the European Banking Authority, over a third of European banks utilise white labelling arrangements. White labelling presents numerous advantages, including cost reduction, expanded service offerings and enhanced financial inclusion, thereby fostering competition within the industry. The model, however, introduces new complexities, increasing operational and compliance risks and raising potential challenges for consumer protection and proper supervision. In particular, supervisory authorities face the challenge of overseeing these increasingly fragmented value chains and ensuring effective regulatory convergence across EU member states. The traditional boundaries between regulated institutions, technology firms and nonfinancial entities are dissolving, forcing supervisors to adapt their practices. This paper explores how these trends are fragmenting traditional value chains, enabling both incumbent financial institutions and nonregulated entities, including FinTechs and BigTechs, to enter the market and offer financial services and products in the EU. The paper focuses in particular on white labelling: it presents use cases, benefits and risks and analyses the resulting supervisory challenges. This article is also included in ‘The Business & Management Collection’, which can be accessed at https://hstalks.com/business/.