The fintech market has a capitalization of almost $179 billion and many interesting ways to disruption of traditional financial services. With almost 30,000 fintech startups all over the world, the dominance of fintech continues growing every day. The global fintech funding in 2022 rounded up to $75.2 billion, thereby creating interest in top fintech business models which can drive the success of fintech startups.
It is important to understand how fintech firms have to adapt to the new economic reality with changes in consumer behavior and experiences. Innovative business models provide an effective answer for adapting to new trends in the domain of fintech. The following post offers a detailed guide to the top business models which can establish the foundations of fintech startups.
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Prominent Trends in the Fintech Market
The best approach to identifying the best fintech business models starts with a review of the most popular fintech trends. Awareness regarding the future fintech trends can help in identifying the business models which can help startups embrace the trends. The global fintech market can achieve a market capitalization of almost $305 billion by 2025. If you want to build your business in the domain of fintech, you need to keep an eye out for the following trends.
The impact of artificial intelligence in finance and banking has created favorable improvements, especially with the efficient use of data. AI can dictate new standards for fintech business model development by offering significant value advantages in different operations.
For example, artificial intelligence can support risk management, fraud detection, and conversational banking alongside interaction with customers. AI chatbots have proved successful in addressing important customer experience requirements alongside obtaining accurate intelligence on customers.
One of the notable answers to “What are future fintech trends?” would also refer to Regtech or regulatory technology. Regtech focuses on the utilization of technology to help companies ensure efficiency in achieving regulatory compliance. It aims at helping financial institutions and fintech startups in addressing regulatory requirements with a lower cost burden. The outline of fintech innovation examples in Regtech points to the use of AI scripts for detecting suspicious patterns in customer activity.
Robotic Process Automation
Robotic process automation is another formidable trend in the domain of fintech. It helps in automation of back-office tasks, thereby saving time required to work on manual, rule-based and repetitive activities. RPA is a revolutionary ingredient for business model fintech companies can adopt in 2023 for addressing the requirements for managing humongous volumes of paperwork in fintech. The applications of RPA can support regulatory compliance, better data management, lower operational costs and seamless customer experiences.
The strategic planning for creation of new fintech startups should also consider open banking as one of the influential factors. Canada has plans to launch an open banking system in the first quarter of 2023. The business model of fintech companies must integrate elements of open banking to empower consumers with more control over their financial data. Open banking can help customers in sharing their financial data with secure third-party providers for accessing financial services.
Embedded Financial Services
The seamless integration of commerce and finance has created the necessity of embedded finance as an important fintech innovation. As a matter of fact, one-third of customers are likely to spend money on brands that can offer embedded financial services. One of the fintech innovation examples with embedded financial services points at Buy Now Pay Later or BNPL schemes. BNPL has become a prominent driver of e-commerce transactions in the past five years. Research reports have suggested that BNPL transaction volume could increase up to $265 billion by 2026.
Alternative finance models have emerged as challenges as well as opportunities for fintech startups. The top fintech business models in 2023 would have certain aspects of alternative finance. It can provide better efficiency and accessibility of financial services for individual users and businesses.
Blockchain is also one of the top trends which would affect the future of fintech startups. Most of the emerging fintech business models can leverage blockchain technology to facilitate different fintech applications with value-based advantages. The applications of blockchain technology in fintech include peer-to-peer lending, decentralized finance or DeFi, cross-border payment services and identity management. In addition, blockchain offers an effective instrument for traceability of fintech supply chains.
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Innovative Fintech Business Models for 2023
The review of top tech trends in fintech showed an effective impression of how the fintech industry would shape up in the future. At the same time, answers to “What are future fintech trends?” give a clear impression of the potential factors you should integrate into a fintech startup model. The continuously increasing flow of investments into the fintech space has provided many opportunities for new fintech startups. Let us take a look at the top ten innovative startup models for fintech startups in 2023.
Alternative Insurance Underwriting
The insurance industry evaluates the life insurance premium estimates for individuals according to their health statistics. For example, two people with same height and weight and without drinking or smoking habits would have to pay the same life insurance premium.
On the other hand, life insurance companies do not account for the lifestyle of the individuals. Risk premiums cannot evaluate the qualitative factors, thereby leading to faults in premium calculation. An innovative business model fintech startups can choose for solving such issues is alternative insurance underwriting.
The innovative model would emphasize variable premium computing mechanisms, which use alternative data pointers, including medical history and lifestyle. InsurTech companies can also leverage smart, self-learning algorithms for facilitating alternative insurance underwriting.
Peer-to-Peer lending is also an innovative business model suited for fintech startups in 2023. It involves an individual borrowing money from other individuals without relying on banks. Businesses can also leverage the fintech business model of P2P lending for borrowing money from one or multiple individuals.
Peer-to-peer lending models can help investors obtain better returns in comparison to debt markets. Fintech companies using the peer-to-peer lending approach can achieve credibility by offering money to pre-approved borrowers. One example of a P2P lending fintech startup is Funding Circle, which develops platforms for matching borrowers with lenders.
Digital insurance also presents broader opportunities for creating fintech startups beyond alternative insurance underwriting services. The business model of fintech companies in digital insurance can offer advantages of better underwriting practices for efficient pricing of insurance premiums. At the same time, digital insurance business models can also help fintech companies in leveraging the benefits of personalized marketing.
One of the most trusted business models for fintech startups points to payment gateways, which help customers in paying for products and services on merchant websites. Online businesses use multiple payment methods involving credit cards, debit cards, cryptocurrencies and digital wallets.
However, banks demand humongous transaction fees for managing all transactions with different methods. Interestingly, fintech innovation examples in payment gateways enable integration of different payment methods into apps. Businesses selling products and services online can use payment gateway apps such as Stripe and Alipay to streamline their payments.
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Alternative Credit Scoring
The conventional and stringent credit scoring criteria can prevent many self-employed people from obtaining bank loans. Therefore, new fintech business models like alternative credit scoring services can serve as useful ideas for emerging startups. Credit scoring companies in the domain of fintech, such as Nova Credit, have come up with new approaches for credit rating evaluation. The new fintech models for credit scoring using alternative data pointers such as social signals for accurate credit scoring.
Data is the most vital asset for any business and offers valuable insights into customer requirements and objectives. The examples of business model fintech startups can adopt in 2023 would also highlight transaction delivery and business models. Fintech companies using the transaction delivery model have been developing free solutions such as expense management apps.
The transaction delivery apps help in collecting customer data and conducting cross-examination of the data with remaining group of customers. As a result, the apps can help in determining the potential of consumers for paying premiums, buying mutual funds or investing in real estate.
Another popular innovative business model recommended for fintech startups is asset management. It is one of the top fintech business models which has been popularized with fintech giants such as Robinhood. The fintech platform helps investors in trading without any costs by exchanging their data. Subsequently, the platform relays the trading data to high-frequency traders, who are capable of influencing asset pricing.
The popularity of challenger banks in the fintech domain has opened up opportunities for disruption in traditional banking sector. Digital banking is an inevitable addition among answers to “What are future fintech trends?” as it redefines the way customers access banking services.
Examples of success of challenger banks imply favorable prospects with the use of fintech for digital banking. The primary advantage of challenger banks points to flexibility of accessing individual and business bank accounts with comprehensive digital infrastructure. Digital banks could function like conventional physical banking facilities, albeit with higher cost savings and low manpower requirements.
Small Ticket Loans
Banks and traditional lenders have always avoided small-ticket loans owing to higher costs and low margins. Many examples of business model of fintech companies for small ticket loans involve the use of impulse buy mechanisms. In addition, fintech companies can offer support for helping customers finalize their purchases quickly without complicated authentication processes. Fintech startups can use such business models for sharing customer data with original equipment manufacturers or OEMs. Such models can help companies in coming up with personalized marketing offers.
The final addition among examples of fintech business model for startups reflects on possibilities for using blockchain. Fintech companies can leverage the benefits of blockchain technology to address various inefficiencies in the capital markets. Blockchain can help transform any conventional financial service with multiple value advantages.
For example, blockchain could help in efficient collateral management for lower operational overheads alongside addressing the concerns of trust issues. Most important of all, blockchain-based fintech platforms can introduce democratic approaches to access and use of data and digital assets.
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The benefits of different innovative business models in the domain of fintech prove their capability to determine future of finance. At the same time, the favorable state of investment in the fintech industry demands entrepreneurs make the most of available opportunities. Innovative fintech business models help startups in leveraging the new tech trends which can influence the financial services sector.
Starting from AI to blockchain technology, fintech startups have the option to embrace multiple technologies. In the long run, the success of a fintech startup would depend on its choice of business model and how it helps its customers. Learn more about fintech fundamentals and business model innovation in detail now and become a Certified Fintech Expert!
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!