White Label: The Technological Illusion of Competition

• DOI: http://doi.org/10.1177/0003603X221126160
• Published date: 01 December 2022
• Date: 01 December 2022
• Subject Matter: Articles

https://doi.org/10.1177/0003603X221126160

The Antitrust Bulletin

2022, Vol. 67(4) 642 –662

© The Author(s) 2022

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DOI: 10.1177/0003603X221126160

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Article

White Label: The Technological

Illusion of Competition

Garry A. Gabison*

Abstract

This article looks at the competition (or lack thereof) in the U.S. and EU financial service markets

and how innovative companies have decided to enter the market. Over the years, many start-

ups have ventured into financial services; however, they have faced heavy regulations. These

regulations have led these companies to using a “white label” business model. This model has

wide competition law implications: some good (e.g., more innovation at different levels of

financial services) and some bad (e.g., innovative companies being bought out). These start-ups

do not provide the competition first hoped while competition authorities and regulators often

lag behind the technology to act and preserve competition before it is too late. This article

makes some recommendations how the U.S. and EU competition authorities can learn from each

other’s mistakes.

Keywords

FinTech, regulatory avoidance, white label, taskification, competition law, mergers

I. Introduction

Since the 1980s, the U.S. and EU economies have seen a decrease of its manufacturing sector and an

increase of its service sector.1 This shift has deeply impacted the economy and society. Many manufac-

turers relied on outsourcing.2 Companies had to rely on either outsourcing their whole supply chains or

outsourcing specific tasks along their supply chains.

*Senior Lecturer of Law, Economics and Regulation, Centre for Commercial Law Studies, Queen Mary University of London,

London, UK

Corresponding Author:

Garry A. Gabison, Centre for Commercial Law Studies, Queen Mary University of London, 67-69 Lincoln’s Inn Fields,

London, WC2A 3JB, UK.

Email: g.gabison@qmul.ac.uk

1126160ABXXXX10.1177/0003603X221126160The Antitrust BulletinGabison

research-article2022

1. See e.g., Kerwin Kofi Charles et al., The Transformation of Manufacturing and the Decline in US Employment, 33 NBER

MacRoEcoNoMics aNN. 307 (2019) (discussing the decline of manufacturing in the US economy since the 1970s).

2. See e.g., Christian Berggren & Lars Bengtsson, Rethinking Outsourcing in Manufacturing: A Tale of Two Telecom Firms,

22 EuRo. MgMt J. 211 (2004) (discussing and comparing two outsourcing examples).

Gabison 643

Breaking up the supply chain into smaller pieces is known as “taskification.”3 Much like manufac-

turing, services underwent a taskification in recent times.4 This taskification5 enables some service

providers to outsource some tasks, improve efficiency,6 and use white label services.7 White labeling

occurs when an entity manufactures a product and sells it to another who then affixes their own label

onto the product.

The financial sector has followed similar patterns. The financial industry has expanded in the United

States and United Kingdom since the late 1970s and early 1980s. Deregulations in the United States

and the European Union boosted this growth:8 they led to market entry and more competition from

within the industry.9 Deregulations shifted the oversight burden from specialized regulators to the com-

petition laws because policy makers implicitly relied on competition to keep these markets efficient.

White labeling is a form of outsourcing or subcontracting. With this form of subcontracting, the

consumers do not know the identity of the producer and suffer from information asymmetries. However,

information asymmetry is not the only problem with white labels. This article investigates how white

labeling has been used to circumvent financial and competition regulations. This article compares this

circumvention in the United States and Europe, with a focus on the United Kingdom because of its

large financial service industry.

The circumvention of competition laws can harm customers in the short run because less competi-

tion often leads to higher prices. This circumvention can harm financial markets over the long run

because financial services may become less innovative. The circumvention of financial regulations will

also undermine financial markets.10

In the financial sector, the chief white label service providers are banks and FinTech companies.

FinTech is a portmanteau word combining two words: finance and technology. FinTech companies are

companies that provide financial services through technology.11 Those types of financial services have

a long history12; but the Internet and smartphones have enabled the FinTech sector to grow.

3. “Taskification refers to piecemealing (slicing) work activity into smaller activities.” Seppo Poutanen et al., Digital Work

Economy in the Platform, in Digital WoRk aND thE PlatfoRM EcoNoMy: uNDERstaNDiNg tasks, skills aND caPaBilitiEs iN

thE NEW ERa, 3 (2019).

4. See e.g., Rainer Lanz & Andreas Maurer, Services and Global Value Chains: Servicification of Manufacturing and

Services Networks, 6 J iNt’l coM., EcoN. & Pol’y. 1550014 (2015)(discussing the global value chain of certain goods and

services and how parts of the production process have been outsourced into services abroad).

5. I have discussed and modelled in a previous article how breaking up services that were previously provided together can

be used to increase profits. See Garry A. Gabison, Harmful Unbundling, 39 J.l. & coM. 1 (2020). However, in this previ-

ous article, the service provider would provide both services but would sell it separately; here the services are divided in

tasks, which are sold together but provided by different entities.

6. Almas Heshmati, Productivity Growth, Efficiency and Outsourcing in Manufacturing and Service Industries, 17 J. EcoN.

suRvEys. 79 (2003).

7. For example, in the merger between Marriott and Starwood, the European Commission identified three business models:

(1) a hotel owned and operated by main entity; (2) owned by the main entity while operated by a “white label” manage-

ment company; and (3) a franchise where the owner of a hotel contracts with the main entity to be able to use the brand

and chooses either to manage their hotel under business model (1) or (2).

8. Improvement in telecommunication also led to some outsourcing. See e.g., M. Hossein Safizadeh et al., Sourcing Practices

and Boundaries of the Firm in the Financial Services Industry, 29 stRatEgic MgMt. J. 79 (2008)(finding that deregulation

and advances in technological systems have led to an in/outsourcing rethink).

9. See e.g., Hilary Ingham & Steve Thompson, Structural Deregulation and Market Entry: The Case of Financial Services,

14 fisc stuD. 1 (1993)(discussing market entry and diversification following financial services deregulation in the 1980s

and using the United Kingdom to show the impact of deregulation).

10. See e.g., Daniel Haberly & Dariusz Wójcik, Culprits or Bystanders? Offshore Jurisdictions and the Global Financial

Crisis, 3 J. fiN. REg. 233 (2017)(discussion how offshoring to avoid regulations has been involved with unstable financial

instruments).

11. Thomas Puschmann, Fintech, 59 BusiNEss & iNfo. sys. ENg’g. 69, 70 (2017).

12. Id.