The Best Fintech Business Models Today
Financial Technology or simply Fintech are firms that are based on Digital Technology Business Models operating in the Financial Sector.
One of the main drivers of Fintech was to move traditional value propositions to the digital technology domain. This includes payments, money transfer, trading, banking and others.
Think of a traditional bank account that can be accessed online now. Others are moving something existing online but with innovative elements. One example is Robinhood enabling trading of fractional shares. This can allow small investors to build a diversified portfolio noting that most of their investors are Millennials / less-affluent segments who are in the early phases of building wealth.
Then there are entirely new endeavours such as cryptocurrencies. Yes, money existed for thousands of years, but the properties of crypto are very different and it’s certainly not the same as moving fiat currency online. The underlying Blockchain technology has already spurred significant amounts of innovation. In addition, it has an emerging ecosystem which is based on similar paradigms.
And then there are the many fascinating Fintech innovations that sit somewhere between moving an existing value proposition online and creating something entirely new.
Get an expanded version of this graphic for free below.
The image shows some of the key types of Fintech. We are not showing incumbent banks moving their existing solutions online. That is just adapting to technological progress.
Digital banking has remained largely under the grip of the incumbent players. This is in part due to the heavy regulatory burden which poses heavy barriers to entry as well as the long-term customer relationships they have built, e.g. via home loans.
Yet, innovative Fintech players are succeeding across all the categories shown here. Take Fiserv which benefited massively with its Fintech B2B offers to financial institutions in the banking digital services space and has probably seen the biggest share price growth in the entire Financial sector over the last few decades.
Types of Fintech
Incumbents have been defending their turf fiercely but we are seeing exciting Fintech innovators emerging in all categories. Let’s look at some key Fintech categories by major value proposition.
(1) Payments
Digital payment and money transfer has brought some of the biggest Fintechs like PayPal and Stripe. Users could connect their existing bank accounts to these platforms and use them for convenient online payment without having to move over their entire banking business to PayPal or Stripe.
Mobile Wallets and mobile payment solutions like Apple Pay and Google Pay
Online payment platforms like Paypal and Stripe
Peer-to-peer payments (Venmo owned by PayPal) and
Hybrid ones like Square (now Block)
(2) Trading and WealthTech
Trading and wealth management have (so far) been defended by incumbents moving their platforms online. The entire industry was grappling with the fallout from the 2008 Global Financial Crisis (GFC) through the early-2010s which meant that Fintechs in this space started emerging from around the mid-2010s.
New trading platforms like Robinhood, eToro and Acorn (micro-investing) are focusing on younger generations of traders. Robinhood is widening and deepening their set of offerings which shows early signs of increasing customer lifetime values
Specialised trading platforms like Coinbase who are focusing on crypto. They have a comprehensive set of WealthTech offerings include crypto trading, custody, interest via staking (called “rewards” in the crypto space) and a promising ecosystem
Robo-advisors like Betterment and Waterfront automate advisory via AI models. Robinhood has recently acquired AI-based Pluto Capital investment research platform which may form the core of advisory offerings
(3) Loans & lending
The space of loans has been difficult to enter due to the balancing act of growing fast while not underwriting prohibitively risky borrowers. It is also one of the most heavily regulated areas due to the systematic spill-over effects that flawed lending regulation and a wave of bad loans can have on other financial areas (as the GFC has reminded us once again).
Great innovators are emerging in this area focusing on:
Many online-only lenders like Upstart and many online brands of major (offline) lenders and banks
Buy-now-pay-later (also called point-of-sale financing) like Klarna and Affirm, PayPal Pay in 4
And peer-based platforms, like peer-to-peer lenders, crowdfunding and more
Lending solutions are also embedded in many other Fintechs, such as Robinhood (e.g. for the purposes of options trading) or Coinbase for the purposes of financing coin purchases
(4) Blockchain & Cryptocurrencies
Crypto is an emerging system with many facets still in the early phase and a dazzling range of innovative ideas.
The many cryptos themselves can be seen as a platform business model themselves
Trading platforms and exchanges like Coinbase
The emerging ecosystem with dApps, web3, NTFs and more
Fintechs on the rise!
The GFC has probably delayed the startup of technology firms in the financial sector until the early-2010s compared to other verticals. But since then we have seen a lot of great Fintechs. The one area where they are probably struggling the most is a loans-only Fintech. Yes, some offer personal and car loans. But with all due respect, these are also the most risky loans (this doesn’t mean it can’t work but may require more fail-and-learn). Many of the online-only loan providers are owned by traditional banks. In addition, competition comes from Fintechs specialised in other value propositions, such as trading.
Fintech have started making big strides in Investing/WealthTech and Payments & Money Transfer.
A lesser-known huge winner is in the Fintech infrastructure space called Fiserv. They are the hidden giant with many B2B Platform-as-a-Service, Banking-as-a-Service offerings and many other solutions.
And then we have the hugely fascinating space of other Fintechs at the intersection with other digital technology verticals, such as a SaaS and Vertical Search. Companies that we love in this space are Xero and CoreLogic.
Understanding the business models of these exciting firms will give you a great overview of the best Fintech Biz Models Today which you will find in our book.
(5) And many other exciting approaches
There are many other sub-categories of Fintech with a sprawling set of startups and those that are transforming their old business models to something entirely new.
Insights & analytics is one of the areas where digital technology brings orders-of-magnitude improvements compared to traditional players. Great examples are CoreLogic or Moody’s
SaaS: Software-as-a-Service focusing on financial value propositions such as Xero as one of our examples in the book
Financial services: those that provide services to the customer-facing Fintechs and B2B, e.g. Fiserv
Insurances (InsurTech): from new (parametric) approaches, e.g. Lemonade, to AI-powered underwriting
And yet more
The Best Fintech Biz Models Today
Fintech is a very exciting space for digital innovators. We have not yet seen dominant players like in other areas (e.g. Search Engines or Social Media). This means there are still many opportunities for exciting innovators.
We are covering 6 Fintechs from different categories and the most fascinating business model aspects that they are bringing to the table. Learn more about Fintech from Best Fintech Biz Models Today:
Robinhood ~ Coinbase ~ PayPal ~ Fiserv ~ CoreLogic ~ Xero
We have carefully selected the best examples from different sub-verticals of Fintech that elaborate on a broad range of creative business model approaches.
~50 pages (pdf) presented in a wonderful format that is easy to read & understand.
You will love reading this book!
