How do fintechs make money?
You may be surprised to know that this isn’t a question that troubles many fintech start-ups in the early stages of their business cycle.
At this point, they’re concerned with growth ahead of profit and it’s only when they reach a certain size that they look toward financial gain.
Yet, making money is a top priority for any business and it’s why later-stage fintech firms like Revolut and Stripe have clear revenue models in place to start making bank.
There’s certainly plenty of potential for money-making. The fintech market is set to grow almost three times faster than other traditional banking services by 2028, according to
McKinsey research, bringing about a doubling in global revenue.
The expected growth in global fintech revenue
Source: Statista
For entrepreneurs looking to be a part of this boom, it’s essential to know how fintechs make money now so that they can develop robust long-term revenue streams.
Want to find out how your fintech can build leads with quality fintech SEO and content marketing? Book a no-cost consultation with Mint Position, a fintech SEO agency, and we’ll show you a proven path to more organic leads and higher conversions.
Are fintechs profitable?
Just half of public fintechs were profitable in 2022, according to the above McKinsey report. The reasons for this vary, but experts put it down to these main factors:
- A fintech market correction following a period of rapid growth
- A 40% downturn in fintech funding thanks to a challenging business environment
- Increased cost management practices
It looks like we’re seeing a transition from the hyper growth phase that has marked fintech until now toward a sustainable profit growth era.
Yet, despite this shift, fintech entrepreneurs will still want to answer the burning question “how do fintechs make money?”
Let’s take a look at some of the most profitable fintech business ideas around right now.
How do fintechs make money? 6 top business models that have contributed to the fintech revolution
When we look at how to value fintech companies, their potential to make long-term revenue is a big factor.
Here are 6 top revenue models that some of the industry’s biggest players use.
1. Customer fees like subscriptions or flat charges
Financial institutions have charged customer fees since Day 1 of banking but the model has evolved in the fintech era.
We can break these down into two main categories: subscription fees and flat charges.
Subscriptions, a monthly or yearly amount billed to the customer for banking services, are growing rapidly, particularly among younger Millennial and Gen Z users.
In the United States, under 40s make up 69% of the $13 billion-a-year subscription spend, according to: Forbes, making it an effective long-term monetization strategy.
Fintech fees by generation
Source: Forbes
Flat fees, meanwhile, are simply a small charge for each money transfer. This is a small percentage of each transaction but it mounts up to an impressive figure across a large customer base, which is why so many start-ups focus on growth first.
Real-life examples
Acorns is a US fintech app that has mastered the art of subscription fees.
61% of their new subscribers opted for the middle price point (compared to just 25% for the lowest tier) between 2020 and 2022, with Acorns able to show that their account balances grow faster when they opt for an account upgrade. Engagement also increases the more the customer pays.
How Acorn’s engagement improves as customers pay more
Source: Andrew Casey
Acorns doesn’t charge transaction fees, but one fintech that has a successful flat fee strategy is Venmo.
This may surprise you: Venmo has built a successful business model on free transfers, but it charges 1.75% for instant bank transfers and up to 3% for credit card transactions.
Over its vast user base, this amounts to a hefty revenue stream for the US’s top social payment mobile app.
2. API connection fees
Open banking will soon be a dominant force in the fintech industry.
A growing market value, expected to hit $128 billion by 2030, is backed up by public approval. 56% of US citizens cited open finance as a must-have in 2022, according to a survey by Finastra.
Application Programming Interfaces (APIs) are the veins and arteries of the open banking system. They allow information to flow between different financial software programs and have already resulted in some exciting real-world examples, including:
- Banking-as-a-service (BaaS) APIs that let non-financial businesses offer financial features
- Connections between fintech apps and accounting programs (i.e. Quickbooks) that simplify and accelerate book-keeping.
- Connecting apps to customer bank accounts for easy funding.
All well and good, but how do fintech companies make money from APIs?
The simple answer is through leasing them out to business customers. This includes one-off connections, a monthly subscription, and charging a percentage fee for each transaction performed via the API.
Fintech API monetization is on the rise with 68% of all fintechs now offering a specialized API solution, according to 2023 Statista research.
Source: Statista
Real-life example
Plaid is a fintech that has had great success with API-based products.
For an affordable fee, it integrates businesses with financial apps that let their customers verify their identities and check account balances. It also provides them with enriched data that the company can use to offer personalized user features.
Plaid’s network covered over 12,000 financial institutions and 6,000 companies by the end of 2022, making it one of fintech’s most successful API providers.
3. Website or app advertising
Many fintechs can get away with freemium products simply because they earn enough money through ads.
This doesn’t mean traditional advertising designed to draw users to them (although fintechs also do this!) but instead diverting user attention to other companies via on-site or in-app ads.
Often the advertised services are related to the fintech’s product. Let’s say you’re an app that offers financial advice and budgeting tools. Your most effective type of ad would probably come from a fintech that specializes in modern investment management like robo-advisors.
This type of arrangement often leads to fruitful partnerships between companies as they establish a profitable relationship between their products.
Real-life example
Mint is a personal finance app that uses advertising as one of its two main revenue streams, along with referrals.
Its main product is free, but it still manages to monetize it by selling website and app space to companies for ads. The advertisers find this attractive because Mint uses targeted advertising to connect them to relevant users, according to their search history and user profile.
4. Customer data
Data is a highly valuable commodity that fintechs are much better at capturing than traditional banks.
In fact, it’s been one of the reasons behind their explosive growth.
“Customer data targeting was one of the first areas in which fintech emerged as a leader of change.” says Raushan Kretzschmar, Masters Program Director of EADA Business School. “If we can all agree that the fintech revolution is just starting, then the limit for imaginative applications seems endless.”
Fintechs are popular because they can use data to personalize their service for users. A customer can log onto a digital payments app and get budgeting advice based on their spending history, for example.
The payment app also wins because the user is more likely to stay with them, plus they get to monetize the data.
Many fintech business models now include Big Data strategies that involve upselling or cross-selling financial data to third parties. The user agrees to it when signing the terms and conditions and may get improved services and targeted advertising as a result.
Yet with this trend comes great responsibility. As artificial intelligence-powered financial products become more common, fintechs will need more robust data protection measures and cybersecurity tools to safeguard financial data.
Real-life example
MoneyCoach is a savings and budgeting app that analyzes your spending habits to give you financial recommendations.
It has grown rapidly in the last few years with one simple premise: you share your data with us and we’ll help you achieve your financial goals.
It also integrates with digital wallets which allows it to track your transactions and deliver more accurate insights.
5. Referrals and partnerships
Many fintechs can offer a free product thanks to third-party referral income or exposure.
Let’s say you run a free payments app and you offer a personal loan offer from a third party as an extra service. You get a referral free from every user that signs up to it.
There are many other ways of doing this. Some fintechs have expanded into the crypto industry by enabling users to buy cryptocurrencies from a third-party platform, like Coinbase.
Not only does this bring in revenue through referrals, but the fintech company also gets to easily expand into new offerings.
Partnerships can also extend to shared expertise. An important B2B content marketing trend following the rise of AI is to work with specialists from other companies to add brand authority. This helps build trust with customers who value expert insights and makes them more likely to convert to paying users.
Real life example
Investment app Robinhood is a prime example of a fintech branching out into the crypto industry to diversify its services and attract new customers.
It recently integrated with digital wallet MetaMask to launch a wallet on-ramp called Robinhood Connect. Robinhood users can use this to buy cryptocurrencies like Bitcoin via a secure Consensys connection.
The move will expand the app’s reach and cater to the growing demand for crypto investments from its customers. This, along with the extra transaction fees it collects, makes it a viable long-term revenue stream for the popular investment app.
6. Interest
Charging interest for finance is another age-old business model, but still very effective for lenders.
There are many types of finance that can generate this kind of revenue, ranging from Buy Now Pay Later (BNPL) to earnest money lending.
The beauty of interest is that it’s passive income for the fintech company. It gets to generate revenue from funds it already has and even the lengthy paper applications of the past have been reduced to automated online forms.
Loan underwriting and credit scoring, too, are now in the hands of algorithms that can detect potential borrower issues before they arise.
Real-life example
Venmo is famous for being a payment app between friends, but a large chunk of its success is down to its creative credit card offering.
Users can get cash back from it paid into their Venmo account to use in transactions. They can choose which currency to receive it in, be it crypto or dollars. Venmo, of course, charges a certain interest rate on the outstanding balance.
How much money can you make from fintech?
Now we’ve answered the question of “how do fintechs make money?”, the next one may be just how MUCH money can they make?
Well, the sky’s the limit, to put it frankly.
Fintech is set to shape the financial services industry over the next decade because it’s designed to embrace the latest technologies that are sweeping the world, including AI and machine learning.
Already we’re seeing vastly improved digital finance products that are transforming the way we manage money.
An e-commerce retailer can now offer instant financing options at checkout, for example, while credit offerings like P2P lending include instant approval processes and competitive interest rates.
In 2023, global fintech revenue rose to almost $80 billion, according to Statista research. With technology continuing to inspire new fintech business ideas, this figure is expected to rise rapidly over the rest of the decade.
Ready to see how fintech SEO and content marketing can help your business grow? Get in touch with us and we’ll boost your brand’s search engine visibility, attract more valuable organic traffic, and help you increase conversions.
