Top 5 Fintech Business Models: Why They Work and Successful Examples

7 min read
Frank L.
Frank L.
Published February 21, 2023

"Fintechs are popular, yet few are profitable," opined Capgemini's World Fintech Report 2021.

Every financial technology company needs to make money and a sound business model is the fulcrum upon which a fintech company can scale.

These five fintech business models can help you choose the best way to monetize your fintech offering.

1. Recurring Fee-Based Financial Services

Fintech companies are revolutionizing the financial services industry by providing recurring payments, currency exchanges, and asset management services digitally — without the physical infrastructure or human resources overhead of their brick-and-mortar counterparts. As a result, they are able to serve a wider range of users at significantly lower costs.

Digital Wallets

Google Pay and Apple Pay are popular digital wallets for small transactions. Similarly, Venmo offers consumers and small businesses a convenient payment method. These companies are examples of recurring services that make a per-transaction commission from merchants and service providers.

Increasingly more users are adopting digital wallets over conventional bank transfers because of the easy and convenient user experience such digital wallet apps offer.

However, new digital wallet startups must watch out for low profit margins. Successful digital wallets make very little money per transaction but make it up on daily transaction volumes. So new digital wallet startups need a sound strategy to quickly scale up daily transactions.

Payment Processing Services

Lots of businesses rely on payment processing services like PayPal and Stripe to fulfill digital transactions. These services charge a fee between 1% and 3.5% per transaction. In return, they offer a payment gateway and APIs to simplify layers of financial intermediation.

However, not all countries treat these fintech companies favorably. So country-specific regulations are a big challenge when it comes to scaling up such services. Just like other conventional payment processing financial institutions, these fintech service providers also bear the brunt of financial fraud. New entrants need to be wary of how regulations and fraud could undermine their business.

Neobanks and Digital Banking Services

Ally, Chime, and Current are all good examples of digital and neobanks that offer virtual bank accounts. They offer banking services such as digital payments, savings accounts, debit cards, and credit cards without any physical locations. Lower operating costs allow these banks to attract users with significantly lower bank fees, quicker turnaround times, and better security features.

Green Dot is another digital financial service company that has grown exponentially by becoming the payment platform for innovative, fast-growing companies such as Apple, Uber, and Intuit.

These companies were all established less than 15 years ago and yet have managed to wrestle away a big chunk of users from traditional banks. However, ambiguous and unfavorable financial policies in different countries continue to be the biggest threat to these new-age banks.

Asset and Data Management Services

Fintech asset and data management services are making investing more accessible to a broader range of users in exchange for lower recurring fees.

For example, Acorns provides an automated personal investing service that starts at $3 per month. Similarly, Morningstar delivers independent investment research and analysis at a monthly fee of $35. And companies like Asset Class, T-REX, and Arcesium deliver a suite of competitively priced services for institutional investors.

These companies leverage automation to cut human interaction to the bare essentials. In turn, this allows them to scale up their services while lowering costs significantly. But changing investor demands, complex needs, and support that demands human expertise can all eat into the profits of this business model.

Alternative Credit Scoring Services

Credit scoring services that collect better data on particular customer profiles are able to collect recurring fees from other financial institutions. 

For example, Nova Credit specializes in credit scoring services for immigrants, while Moody's Analytics Pulse has credit information for private and public companies across North America.

By offering better creditworthiness models, these credit services are able to significantly minimize risks for their clients and partners. However, they are still vulnerable to poor-quality data and higher repayment risks.

Buy Now, Pay Later (BNPL) Services

Popular BNPLs like Klarna and Afterpay offer consumers zero-interest installment-based payment options. These companies make money by charging their retail and ecommerce partners a variable transaction fee in exchange for a higher volume of orders.

What remains to be seen is how this business model will make profits after investment money dries up. The cost of capital and unknown repayment risks are also potential red flags for this new business model.

Blockchain-Based Business Services

Solutions like Chainalysis get a service fee for providing governments, exchanges, financial institutions, insurance, and cybersecurity companies the necessary data and tools to combat crypto-based fraud and scams. Similarly, companies like Ripple, Circle, and IBM Blockchain earn service fees by helping businesses across the world to harness the power of blockchain.

2. Do-It-Yourself Financial Products

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Scalable fintech products that allow users to pay, invest, and manage finances on their own with the least amount of human intervention are the next business model on this list. The user base that chooses these DIY financial products to gain more control over their financial decisions is rapidly growing every year.


Wealthfront and Betterment are two good examples of products that use machine learning algorithms and artificial intelligence to help individual investors to create diversified investment portfolios --- without involving any investment advisors. As a result, these tools offer more control and options for DIY investors.

However, not many people understand how these tools work, so trust becomes an issue. Most tools in this category address the problem of low trust by offering a free plan, allowing investors to sample the service. They then offer minimally priced premium plans to users who are convinced of the tools' value. So new entrants need a clear strategy to garner the minimum number of viable customers required to be profitable.

Individual Retirement Accounts (IRAs)

No one wants to diminish their retirement fund through taxes or fees, so more and more users are turning toward automated retirement account products like Robinhood Retirement and Bitcoin IRA

Robinhood Retirement offers both a Roth as well as a traditional account. Bitcoin IRA offers over 60 different crypto investments for users to choose from. Both these tools don't charge users any brokerage fee, giving users a better ROI on their investments. These products make money by generating a commission from the trading firms that get the orders. They also earn interest from uninvested cash in their users' accounts.

The rapidly changing economic and regulatory landscapes are the biggest challenges for these products. New entrants need to understand how this may affect their profits and credibility.

Money Management Apps

Personal finance apps like Cash App and Mint give users a convenient way to track all their savings, expenses, and investments from one place. As a result, it helps them get a clear picture of cash flows and budgeting. It also cultivates better saving and investment habits. Typically, these are free apps that make money from referrals. Targeted advertising also becomes a secondary revenue stream.

The biggest challenge for these apps is user retention. So new entrants need a clear strategy to improve user experience and create more "aha!" moments early in the user journey.

3. Transactional Marketplaces That Earn a Commission

Two-sided marketplaces are a type of fintech model that connects lenders and borrowers. They facilitate transactions that mainstream financial institutions would not touch. And in exchange for facilitating, they earn a commission on the transactions that are made on their platform.

Peer-to-Peer (P2P) Lending Platforms

Upstart in the U.S. and Zopa in the U.K. are good examples of marketplaces that qualify borrowers with better risk profiles that go beyond credit scores and enable lenders to earn better interest rates on their loans. Kiva is another example of a P2P lending marketplace that connects borrowers from developing countries with small amounts of crowdfunding from individuals in wealthy nations.

This business model works because it offers an alternative to borrowing from banks or credit unions. It allows individuals who may not be eligible to borrow from these conventional institutions to access loans. However, new entrants must keep an eye out for unrealistic investor expectations and repayment risks.

Crypto Exchanges and Markets

Cryptocurrencies are the new kid on the fintech block. Exchanges like Coinbase provide users with an easy way to buy or sell crypto. Markets like OpenSea take this one step further with a marketplace for NFTs, allowing users to exchange their digital goods for products or services. 

All these companies use their platform to earn commissions on every transaction made on them. In return, their platforms deliver better transparency, security, faster transactions, and lower processing fees. However, they remain vulnerable to hacking attacks that are getting more sophisticated by the day.

4. Innovative Insurance Models

Innovative insurance offerings that leverage InsurTech and consumer data are able to cover customers that fall outside the boundaries of conventional insurance underwriting models. As a result, they are able to charge higher premiums across a wider range of customers.

For example, Newfront and NEXT insure entrepreneurs and small businesses. Similarly, Coalition offers cybersecurity insurance for businesses, an area that mainstream insurance companies seldom deal in.

All these companies use granular data to better understand risk profiles. However, like all insurance businesses, this business model is fraught with unknown risks such as a financial crisis, climate change, or cyberattacks.

5. Data Aggregators That Charge Users for Access

Companies like Plaid and Pinwheel aggregate important financial data across several users and sources. They then charge other fintech startups and financial institutions a fee for accessing this shared resource.

For instance, Plaid collects details such as personal information, contact details, account statements, and transaction summaries from its users. It then sells these useful details to relevant financial institutions.

Similarly, Pinwheel collects income data from a range of different apps and banking partners. It then provides banks, lenders, and fintech companies access to this data for a fee — enabling them to pitch personalized and relevant financial solutions.

Changing regulations and complex intermediary demands are the biggest challenges for this model. So new entrants need a win-win value proposition to work collaboratively with layers of financial intermediaries.

Whatever Your Business Model, Improve User Satisfaction With an In-App Chat

Irrespective of your fintech market or business model, you'll need happy and satisfied users to achieve any meaningful growth. User satisfaction and retention are always going to be more valuable than new leads.

Integrating a responsive in-app chat goes a long way in ensuring that your users get the support they need. Because across all support channels, chat has the second-highest customer satisfaction rating (85%) after a one-on-one phone conversation (91%).

Use Stream's Chat API to build a fully customizable, secure, and scalable chat experience into your fintech app. Start your free trial and start wowing your users with personalized chat support.

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