The term “fintech” is used to describe new technologies that are used to streamline financial services. Fintech businesses typically use technology (web, mobile, AI, ML, Big Data, etc.) to provide financial assistance to customers more efficiently and cost-effectively.
Hence, fintech, or financial technology, has become a rapidly growing industry, changing the way we manage our finances. And increasingly, Fintech companies use innovation and technology to create new products and services that make it easier for their customers to manage money.
Consequently, new fintech business models are popping up, capturing attention, as they offer a number of advantages to both customers and businesses. For customers, fintech businesses typically provide more convenient and affordable services. For businesses, fintech can help to lower costs and improve efficiency.
So, it is important to understand the fintech business model, as it is likely to play a significant role in the future of financial services. With the right fintech solutions, businesses can provide a better customer experience and save money simultaneously.
But how do I know what a Fintech business model is?
The fintech business model is based on providing new products and services to consumers and businesses. For example, many fintech companies are focused on creating mobile apps and websites that make it easier for their customers to track spending, send money to friends, or get a loan. Others are working on developing new financial products that can help people save money or make investing easier.
But how the company wants to operate, target the audience, and make money through such Finance products/services, is a business model. Like planning, it explains every bit and piece of the Fintech solution.
If you are an investor, entrepreneur, or founder of any company in the Finance Industry, knowing the latest Fintech business models is important for you. Because today or tomorrow, you will have to engage with any Fintech business model. Or you can even innovate your own Fintech product. In such scenarios, understanding different types of Fintech business models will be handy for you to decide anything mindfully.
1). Neo banks
A Neo bank is a digital bank that offers financial services without any physical branches. These banks are built entirely on mobile and web platforms and use cutting-edge technologies to provide a better experience for their users.
The fintech industry is disrupted by the neo banks, which are growing in popularity due to their innovative technologies and user-friendly platforms. The Neo banks are poising to take over the traditional banking system with their modernized business model.
The Neo banks have a lot to offer their users, such as:
- A mobile-first and user-friendly platform
- A focus on customer experience
- Lower fees and better rates
- Improved security
The neo-bank business model is quickly gaining popularity in the fintech industry and is set to take over the traditional banking system. Would you like to take up Neo banking as your Fintech business model?
2). Digital wallets
Digital Wallet Business Models in Fintech – Innovation in finance is among the best business models to keep in mind when you think about how to make technology work for you. It is a business model that has been on the rise for the last few years, and the fact is that it’s not going to slow down anytime soon.
In fact, the digital wallet business model has only just begun to flourish. With the rise of digital wallets, the financial sector has been able to offer better customer services. Technology has allowed the industry to reinvent itself, and it has been successful at doing so.
Digital wallets are a convenient way to enable people to store their money and use it digitally without hassle. They can deposit money into their digital wallet and use it to make purchases, make payments and send money. In return, your Fintech company that offers the digital wallet earns a commission with every transaction.
3). Payment Gateways
A payment gateway is a service that allows other websites to accept online payments by working with online gateways like PayPal, Worldpay, 2Checkout, and many others. Payment gateways are a vital part of any business associated with online transactions to collect payments for goods and services or donations. Hence, a payment gateway is an online service that allows businesses to accept payments online securely.
Furthermore, The payment gateway collects credit card information, securely processes payments, and sends the necessary information to the merchant bank and the credit card associations. Just like Digital wallets, payment gateway companies generally receive a small percentage of the transaction from the merchant.
4). API-based bank-as-a-service platforms
APIs (application programming interfaces) are an essential building block for any business. They allow different systems to communicate and transmit data. This way, an application that works on one platform can be used on another platform. The API business model is a new way of providing products and services. This model is used in the finance industry, where banks offer APIs that allow companies to write third-party software applications that interact with the bank’s various accounts, deposits, and other financial transactions.
Thereby, instead of reinventing the wheel, these companies simply use the bank’s API to access the required data and functionality. This strategy lets companies focus on their core business and not on the complicated, constant maintenance of a complex IT system. You can also use the business model for your non-banking financial service company if you don’t own a bank.
5). Peer-to-peer lending
Peer-to-peer (P2P) lending is an online marketplace that connects individual lenders and borrowers. For example, a borrower can borrow money directly from a lender without having to go through a traditional financial institution. P2P lending allows borrowers to get the loan they need while helping lenders earn a higher interest rate on their money.
P2P lending is a way to provide financing at lower rates than banks and other traditional financial institutions. The marketplace also gives borrowers access to loans that they may not be able to get from a conventional lender. Borrowers can apply for loans in a matter of minutes and have the funds deposited into their accounts within one business day.
As P2P lending offers many customer benefits, it is a potential business model for Fintech startuppers.
By applying next-generation technologies, such as Artificial Intelligence, Machine Learning, and Big Data, to financial assets, including savings and investments, WealthTech is taking investment/wealth management by storm. The WealthTech business model businesses basically promote creating a digital finance economy, automating conventional wealth management operations.
Additive, a Switzerland-based company, offers the best-class Software-as-a-Service WealthTech-driven platform for banking and non-banking providers, allowing them to embed wealth services into their proposition efficiently.
Crowdfunding is another efficient FinTech business model to help innovative ideas get funded and step ahead. It works like a marketplace where entrepreneurs showcase their ideas, and interested people can connect and communicate. Crowdfunding platforms, such as Kickstarter, Fundable, GoFundMe, and more, are leading in the market. You can keep an eye on their strategies and working models to find a tipping point for your own.
8). Small ticket loans
Nowadays, many eCommerce platforms and merchants offer a buy-now-and-pay-later – BNPL scheme at one-click checkout. Customers do not even need to enter their credit card details or anything. The model helps people avail of smaller loans that banks and lenders don’t underwrite. Consequently, small ticket loans at 0% interest stimulate the purchasing power with easy payback facilities.
9). Alternative Credit scoring
The strict credit scoring criteria of conventional banks make it challenging to take loans for people with a constant income. That’s where alternative credit scoring comes into play. The model provides support to loan applicants by analyzing their regular payment history. In other words, the model facilitates an innovative credit scoring process by analyzing alternative data through fintech.
Nova Credit, a consumer credit bureau, depicts the perfect example of the model. They employ first-party data and enable consumers to lend more fairly and responsibly.
10). Transaction delivery
In order to map the potential of a customer to pay premiums, invest in real estate, or buy mutual funds, FinTech startups create free-to-use products in the transaction delivery space. For example, expense management apps. They collect customer data through such products and then cross-pollinate it with others in the group. Companies using this business model typically earn commissions on reselling third-party financial products.
You see, there are various types of Fintech business models, and how Fintechs make money differs from them. These models are worth considering whether you are starting a Fintech from scratch or expanding your existing financial services through technology.
And yet, if you cannot contemplate, it is better to consult with a Fintech software development company. Because they typically have overcome such challenges in the past. So you can use their experience to make informed decisions.