Is There Money in Fintech Companies?

What Does Fintech Company Do?     

      Financial technology – from applications to APIs and cloud – is changing financial services rapidly. This will wreak havoc on some incumbent companies, while others will win big

What is Fintech (Financial Technology)?

Financial technology (Fintech) is a new technology that seeks to improve and automate the delivery and use of financial services.

At its core, fintech is used to assist business owners, enterprises and consumers, in better managing their financial operations and lives, by leveraging special software and algorithms used on computers and smartphones. “Fintech” is the combination of technology and finance.

When fintech emerged in the 21st century, the term was originally applied to technology used in the back-end systems of established financial institutions.

However, since that time, there has been a shift towards a more consumer-oriented, and therefore, more consumer-oriented definition of service.

Fintech now spans various sectors and industries such as education, retail banking, fundraising, non-profit and investment management. (investopedia.com)

How is Fintech Growing?

Just because fintech is buzzing doesn't mean it's something new. Even though the phrase was only added to the Merriam-Webster dictionary in 2018, the concept has been around for decades. ATMs, for example, have been at the forefront of fintech innovation, such as the signature verification technology first used by banks in the 1860s.

In recent times fintech has gone, from being associated with startups, to becoming a major aspect of established and longstanding financial institutions. While the term, which usually implies something based on Silicon Valley, has taken the big banks by surprise, today, many fintech companies have teamed up with incumbents, which they are purportedly trying to win over.

As a result, several world-famous institutions now have their own fintech hotbeds under their wings.

JP Morgan put away $25 million in fintech startups in 2019. Capital One has created a fintech-infused “banking cafe,” to bring young, digitally savvy customers to the door.

In 2016, Citi launched the Citi Developer Hub which invites third-party programmers to test and share feedback about application programming interfaces (APIs).

How Fintech Company Make Money?

FinTech makes most of its money from subscriptions, third parties and advertising. However, there are more options to monetize your product.

Since most FinTech companies are still in their infancy, most are focused on growth over profitability.

Many don't understand the business model of a FinTech company, and many doubt it will ever succeed. But in reality, it varies from a FinTech company to an ordinary company.

So let's take a look at the main ways how Fin Techs make money.

E-wallet (digital wallet)

An e-wallet is a combination of a bank account and a payment gateway. This business model allows users to load virtual money into their electronic wallets, and use it to pay or shop. E-wallets are trending nowadays, and since the start of the pandemic, more and more people have started using digital payments.

FinTech companies' business model for digital payments provides customers with the convenience of making contactless payments for a small fee, which is usually passed on to merchants in the form of a merchant discount rate (MDR). These payment platforms also generate revenue from the sale of third party financial services to their customers.

Since there are always innovations in e-wallet application development, the cashless future looks very promising. Examples of e-wallets that are successful in the market include: Google Wallet.

Peer-to-Peer Lending (P2P )

As the Fintech software development market has grown, so have lending platforms. This is where you can differentiate lending platforms and P2P (peer-to-peer) lending.

Through peer-to-peer lending, you can borrow money directly from other people, without intermediaries and financial institutions. People can earn interest on the money they lend to others through this model. By providing such connections, FinTech software companies can earn money.

Getting better returns than what is offered in the debt market is possible with this model, as it simplifies lending for investors.

By building a platform that can match different lenders with borrowers, and charge fees from payment processing, FinTech software companies can help streamline the commercial lending space.

There are many apps that provide financial planning or management solutions for borrowing money, but there is still room for more.

Subscription Fees and Freemium Packages

The monetization model brings money straight out of the pocket of the consumer (end user). Whether on a monthly, quarterly or annual basis, FinTech charges users a certain amount as a subscription fee. This app monetization model is especially effective for Fintech, as free trials allow users to try the product before paying a premium.

Another strategy is 'Freemium', in which FinTech gives users limited feature access to FinTech applications for an unlimited period of time. However, for features that provide more value, users must pay a subscription fee.

Some FinTechs have the option to charge a flat fee, which is also known as a transactional approach. With this approach, the FinTech company earns revenue every time a user makes a transaction. Fees vary from 1% to 4% per transaction.