When you send your friend $7 for dinner via Paytm, you may not believe you’re taking part in a revolutionary event. However, since the introduction of fintech (financial technology), the financial services business has been flipped upside down. Fintech is all around us in 2021, whether it’s buying coffee at your neighbourhood coffee shop or managing your finances.
That said, have you ever wondered how FinTech firms make money? How do they make money so that they may expand their FinTech software development efforts even more? In this post, we’ll take a closer look at what makes a FinTech company profitable and successful.
The growth of cryptocurrencies has shattered FinTech software development, and for a good reason. The blockchain is having a significant impact on the banking industry. Its biggest potential, though, is to disrupt the financial industry’s traditional vision of itself.
Bitcoin and other cryptocurrencies have gone a long way since their inception. Unfortunately, a wave of scams and hacks immediately followed the Bitcoin frenzy. The general public also believed that cryptocurrencies and the blockchain database that underpins them would never be worth the effort.
Many things have changed since then. Almost every facet of cryptocurrency has been reconsidered. As a result, they are now seen as excellent investment opportunities that will lead to long term business expansion. In addition, finTech software development has seen an increase in startups, making for a significant portion of the market.
Several of the most popular cryptocurrencies can be traded on an exchange. The firms behind them have even begun to offer credit cards that customers can load with cryptocurrency and use to make purchases. In addition, these organisations may now perform a variety of financial transactions thanks to blockchain technology.
Cryptocurrencies are creating a name for themselves in the area of FinTech software development by employing decentralised systems. Organisations can use the blockchain to create decentralised platforms, allowing them to develop new business models. Changing each element, including transaction flow, earnings, and growth, helps to ensure success. In addition, businesses can stake cryptocurrency or use them to assist trading and master node them. For example, many firms use dividend-paying exchange coins in addition to interest-earning cryptocurrencies.
Crowdfunding is a concept that involves raising funds to support projects or financial organisations. Smaller sums of money are raised from a larger audience to make financing a product or project easier. This facilitates obtaining the total amount of money required considerably faster than relying solely on a single investment. Although the bulk of crowdsourcing initiatives are conducted online, crowdfunding can also be done offline.
Crowdfunding can take various forms. Participants can access a beta version of a product or service through an early access crowdfunding programme in exchange for their contributions. Typically, the funds raised in this manner are utilised to develop a certain service or product. Profit-sharing is another variation in which contributors make current gifts in exchange for future revenue. Crowdfunding can also be used to raise funds with no expectation of receiving anything in return. Donors may be truly thrilled to contribute to an organisation’s growth.
Crowdfunding can be a fantastic investment, but it comes with hazards that investors should be aware of:
- Returns on investment are tough to predict.
- In some cases, an investor may become a victim of fraud.
- If the crowdfunding platform goes out of business, your investments may be used as securities by the platform itself.
Some FinTech companies use crowdfunding to grow. Contributions to crowdsourcing sites such as Kickstarter and Indiegogo are turned into tangible goods or services. Patreon, Patronite, and Buy Me a Coffee are just a few platforms that support smaller authors, publishers, and brands.
The majority of crowdfunding platforms generate money by charging a percentage of the total amount raised.
3. Digital wallets (e-wallets)
Digital wallet providers are doing exceptionally well in the FinTech software development market.
Digital wallets are made up of payment channels and no-frills bank accounts. Users load virtual money into e-wallets and use it to pay for goods and services online as part of the business model. Since the pandemic, the rise of e-wallets has spurred a surge in digital payments, with an increasing number of individuals using them.
Clients can now make purchases using their smartphones thanks to digital wallets in conjunction with mobile payment systems.
Digital payments can be used to make transactions utilising contactless technology, and the expense is mostly passed on to the seller at a merchant discount rate (MDR). These payment platforms also make money by marketing third-party financial services to their customers.
Because e-wallet apps are continually changing, the future of cashless payments appears to be bright. Today, Apple Pay, Google Wallet, Samsung Pay, Paytm and Venmo are the most popular e-wallet apps.
4. Lending / Peer-to-Peer Lending
Lending platforms are making waves as the FinTech software development business grows. This is where both lending platforms and P2P (peer-to-peer) lending solutions can be distinguished.
People can borrow money directly from other individuals through peer-to-peer lending, bypassing the middleman and banking institutions. This concept allows individuals to earn interest in money they lend to others. FinTech software businesses can make money by brokering such connections.
This technique, which streamlines lending for investors, allows for higher returns than those offered on debt markets.
FinTech software businesses can assist streamline the commercial lending industry by creating platforms that match different lenders with borrowers and generate fees from the repayment process. Although several apps offer financial planning or management solutions for money lending, more is certainly needed.
In a nutshell, Robo-advisors are trading platforms that generate money. Beneficiaries avoid paying investment consultants since technological solutions manage their money for them automatically, and they can also trade commission-free. In addition, these platforms make use of modern technologies like AI and ML to manage portfolios successfully.
For example, a portfolio management firm may charge a proportion of the assets it manages. Robo-advisor systems offer the same services for a fraction of the cost, saving investors a significant amount of money.
6. Money transfers
Transferring money, especially internationally, maybe a complicated affair. Not only is it expensive, but the entire procedure can also be tedious and perplexing.
After the turn of the century, a slew of new online-based enterprises popped up to make money transfers easier.
The majority of their business strategies rely on charging customers a portion of the money they send. However, their quick cash delivery, combined with lesser costs (and, in the case of international transfers, better currency rates), distinguishes them from traditional money transfer services.
The first FinTech software business to affect money transfers, PayPal was a major influence on this trend. However, several firms, such as Wise and Payoneer, have improved this in recent years. Even digital banks, such as Revolut, now allow international money transfers.
7. Payment processors
As the Internet and e-commerce developed in popularity, dealing with enormous numbers of transactions became necessary. It was only natural for platforms to arise and expand to support these processes. Payment gateways are platforms like this that enable customers to pay for things online.
Payment processors are middlemen who manage the data that clients provide during the checkout process. Before delivering payment data to a specific payment processor, a payment gateway accepts it, protects, and encrypts it.
The sales platform asks the customer’s bank to verify that they have sufficient funds, and the bank’s response determines whether the purchase is accepted or denied. These processors also handle authorisation and payment completion. It all happens at once, generally in a matter of seconds.
As part of their business model, companies frequently charge a portion of transaction volumes. Stripe, Chargebee, Adyen, Worldpay, Braintree, and Klarna are just a few successful FinTech software businesses in this category.
Now it’s your turn.
Digital-first financial services startups are launching more frequently, earning clients’ trust faster, growing quickly, and raising more venture capital thanks to these and other business models. Simultaneously, the industry has evolved, with fintech increasingly collaborating with banking partners or selling software straight to banks.
The examples we mentioned and the firms that stand behind these triumphs should persuade you to either create your app or learn more about this issue. So why don’t you look at our blog to learn more about FinTech, Software Development, and other topics that interest you?