Nowadays, the term “FinTech” is receiving much attention. This is simply because they are challenging current financial service companies which also include the traditional banking model. In this article, we will help you narrow down the concepts of this trend and explore the different Fintech, business models and the benefits that digital transformation brings them.
What is FinTech? Is it an emerging technology or not?
FinTech is a combination of two words “financial” and “technology”. Since its inception FinTech is trying to improve financial services through automation.
However, Fintech is not completely a new innovation or technology as it has been there in the past as well. The evolution at a rapid pace is what makes it appear like an emerging technology. Whether it was the inception of credit cards or ATMs, electronic trading floors, and high-frequency trading, technology has been a part of the financial sector to some extent.
Regardless of the significantly dropping investment markets since 2020, American companies are leveraging the underlying FinTech business potential. This in turn has led investors’ in exploring different fintech sectors and investing in them.
FinTech Business Models
At the present time, the financial requirements of people are changing frequently. Hence, to keep up with the evolving financial world here are some of the well-known FinTech Business Models to consider:
❃ Digital Banking
The investment in digital banking is comparatively low than in other models. This is mainly because there are fewer costs for manpower and real estate. This eventually reduces rates and benefits customers.
The digital banking applications that banks offer are now switching to the FinTech business model. Earlier mobile banking apps use to have minimal functionalities but with the dominance of smartphones, the FinTech Model is revolutionizing the game.
❃Alternative Credit System
The credit system for loan applications mandates a minimum score for approval. In fact, there are instances when self-employed people with a steady source of income can’t pass bank loan screenings because of some strict credit scoring criteria.
In addition, there are various factors that impact your credit score negatively. From late EMI payments to short credit lines, any factor may delay the process. So, an alternative credit system is definitely on the cards. In fact, the best FinTech companies are figuring out a way to use backup data like social signals and scoring amongst similar loan groups.
❃ Smart Insurance Plan
The current active insurance plans are drafted in such a way that the one who is maintaining a healthy lifestyle and probably won’t use insurance would still pay the same premium as the other individual who has health issues.
This definitely indicates that the other individual is engaging in unhealthy lifestyle activities such as smoking or drinking. So, working on a Smart Insurance Plan that covers such scenarios will certainly be an innovative FinTech Business Model.
❃ P2P Lending
You can use P2P lending when individual wishes to borrow money from other people. In fact, the same is useful for business, for instance, one business trying to borrow money from another business.
While this model idea is popular within personal groups, modern-day P2P lending platforms such as Mintos take this to a different level. They connect borrowers to possible lenders, ensuring a reliable transaction.
Hence, using this FinTech Business model you can easily help investors, to get better returns than the ones offered in debt markets. If you are a FinTech company you can create P2P lending platforms that allow matching different borrowers and lenders and taking the fee from the repayment operation.
Generally, banks and major lenders avoid offering smaller loan amounts to their borrowers. The main reason is low profits that are further going to get low because of high processing and recovery costs.
But, several FinTech businesses are slowly minimizing the challenges for the small borrowers, speeding up the change in Fintech industries.
This fintech business model makes a payment procedure simple. The loans are then approved at low-interest rates, hence anything can be purchased in one click and paid for in multiple installments. Interestingly, the business enabling these transactions gets access to the valuable user data as and when permitted.
❃ Integrated Payment Gateway
In general, Payment gateways are platforms/portals where customers can pay for a product on a specific merchant’s website.
In the era of debit cards, digital wallets, credit cards, and cryptocurrencies, banks charge big fees for transactions, but FinTech companies are beginning to utilize a model where it allows the integration of such payment methods into a single app. This helps a merchant to easily download and integrate the payment gateway on the website. These types of payment apps are useful for businesses selling their physical products or services to end-users.
❃ Transaction delivery
When it comes to transaction delivery, Fintech companies can create free products to gather clients’ data and then cross-verify them with the rest of the group to connect the client’s potential to pay dividends or invest in real business. This Fintech business model can involve other types of FinTech companies, for example, some reselling financial products with the help of third parties.
❃ Digital Wallets
A digital wallet offers a secure payment system that utilizes different passwords for numerous payment methods and websites.
Using a digital wallet, users can complete purchases easily using online transfer technologies. Also, it is a common practice to have digital wallets in integration with mobile payment systems, allowing clients to pay with their smartphones.
Popular examples of digital wallets are Apple pay, PayPal, American Express, Paytm, PhonePe, Ezetap, and Freecharge.
❃ Asset Management Platform
Approximately 58% of the population holds at least one stock and the majority of them invest actively in the stock market. In fact, there is an increasing trend of investing in NFTs and cryptocurrencies.
Thus, the simplest business model for such investment is creating an asset management platform ( Cryptocurrency exchange). By doing so, you will cover a wide range of audiences which will benefit the business.
Check out, Future of Mobile Banking
Benefits of using FinTech Models
We looked at different FinTech business models now let’s have a glimpse of the perks that come along.
❃ Financial Benefit
The financial sector is probably one of the biggest industries in the world. As a result, various companies have produced heavy money over the years.
Startups like Binance and Coinbase are examples of how the FinTech business model is beneficiary.
❃ Customer loyalty
In general, consumers trust banks to keep their assets safe. So, if your business model introduces different strategies for exchange purposes, money borrowing, or other activities where assets are involved then chances are that the customer will stay with you.
❃ Economic Democratization
Earlier, it was hard to gain access to different economic opportunities; But, with the emergence of technology, especially different FinTech business models, there is a shift in the dynamics of Economic accessibility. To clarify, any individual can easily have access to tools for trading purposes.
Final Remarks on FinTech Business model
Data is certainly becoming more valuable and financial service business ideas can improve by using the best FinTech business model that is suitable for their organization. We covered different FinTech business models and the benefits of using them so if you are interested in knowing more about the Fintech industry or thinking of developing your own FinTech App then Webbybutter is here to guide you.
❃ Which is the top FinTech company in 2022?
Visa is one of the top FinTech Companies in 2022.
❃ What is the difference between FiinTech and Banks?
FinTech is a term that is useful in explaining new technology that provides automation and improves the delivery of finances. On the other hand, banks refer to institutions rather than technology.