FinTech technology has been gaining immense popularity lately. Financial technology helps automate different types of financial processes, thus streamlining business for the industries offering banking and other financial services. The specialized tools can automate a wide range of financial operations. Not only does it speed up the business processes, but it increases the growth opportunities for financial institutions.
Types of FinTechs
What could be a better example of innovation than the cashless transaction? Contactless payments were a trend before the COVID pandemic, but today, it has become a new standard for merchants and customers.
These payment methods have made it a whole lot easier for customers to shop for any product without having to carry cash around. At the same time, cashless payments save merchants a lot of time in storing cash and transporting it to their banks. Let’s take a look at different types of FinTechs and how they make money.
Credit Assistance: Alternative credit scoring methods are used to determine the credit score of a user based on the combination of the qualitative data. This allows lenders to make better decisions regarding whether they should lend the money to the borrower or not. Nova Credit is one such company that has embraced this trend.
Insurance Underwriting: Currently, life insurance premiums are the same for every user – whether it’s a fitness freak or someone who lives a lethargic and sedimentary life. The risk of diabetes, heart diseases, and other chronic illnesses is higher in people living a sedentary lifestyle. Therefore, companies have now started to decide insurance premiums based on the social signals of the user.
Finance Management: Proper management of data can give you detailed insights into your customers’ buying habits and preferences. For example, FinTech companies have started to launch free software apps that can track customer’s expenses and merge this data with other crucial information. It’s a great way to know whether the customer has the potential to pay premiums, invest in financial assets, and so on.
Small-ticket Loans: Lenders do not offer small-scale loans, as these loans are associated with a low margin and high loan processing cost. However, the FinTech industry has now introduced the buy now pay later mechanism that allows borrowers to borrow money now and pay in installments.
E-wallets: Even those who never used mobile payment methods have now become familiar with these digital wallets after the COVID pandemic. They are safe, convenient, and fast. The e-wallet industry keeps improving and expanding to cater to the growing needs of customers and merchants. Google Wallet and Samsung Pay are the best examples of e-wallets.
Online Investment Platforms: The days when you had to hire a broker to buy mutual funds and stocks are long gone. Today, the FinTech industry has brought this innovative technology that allows you to trade stocks and mutual funds without having to pay any commission to a third party. Although the stocks are priced higher here, the fee is still relatively lower than what you’d pay conventionally.
Neo Banks: Neo Banks have revolutionized the banking system. Now, there is no need for physical infrastructure for banking operations. Neo Banks are pretty affordable, easy to set up, and safe. The best part is they provide you with banking facilities 24/7 and anywhere. Another major advantage of Neo Bank is that they offer low-interest loans and high-interest savings offers.
How Do the FinTech Industries Make Money?
Subscriptions and advertisements are the most common ways for Fintech companies to make money. Surprisingly, a vast majority of the FinTech companies are not breaking even. Then, how do they make money?
- Subscription Fee
The most popular monetization approach for a FinTech company is the subscription model. Each customer is billed monthly, quarterly, or annually a specific amount. They also have a Freemium payment model, in which the customer gets access to the app for free for unlimited time, but they have to pay a fee to access premium features. These companies can also charge a flat fee per transaction, which is mostly between 1 and 4 percent.
Another way FinTech makes money is through advertising. The company sells users’ data to the advertising agency to generate revenue. For example, the NerdWallet website has become quite popular among tech-savvy people who need to make smart and informed financial decisions. They run ads on their websites to make money and they’ve also collaborated with third-party services to earn from product promotions.
A FinTech company can collaborate with another company offering insurance premiums, financial accounting, credit scoring, and other financial services. FinTech can direct people to these websites and earn a small percentage of commission in return. These companies can also count on these third-party services for growing their business.
The demand for Robo-Advisors has skyrocketed recently, and it is easy to see why. With the use of AL and ML technology, the companies develop an automated algorithm that can be used to manage different investment portfolios effectively. These automated advisors eliminate the need for an investment manager who charges a significant fee for helping you make important investment decisions. The platform with Robo-advisors charges only a 0.25% fee for handling your assets, while an investment manager can charge up to 1% of your total assets.
- Collecting Data
Fintech companies have tons of user’s personal data that can be supplied to third parties. These companies can gather information about the customers’ spending habits, salaries, where they spend the most, which products and services they are interested in, and so on. FinTech sells this information to lenders and insurance providers that need customers’ data to make informed decisions.
Gone are the days when traditional banking methods were used for processing financial transactions. Today, FinTech has taken this industry by storm. The software development companies have launched many Fintech apps that streamline the financial processes and make it a whole lot easier for these businesses to operate in today’s competitive environment.