Which are the most common or most important business models for Fintech companies? Is there a list of categories? When is a Fintech company actually a FINTECH and not a regular e-business enterprise?
Some of these questions have a somehow clear answer, some do not. At least not yet. Right now Fintech is a type of e-business that evolves and takes shape, and we will have a clearer picture in a couple of years. What we can define, however, is the most typical business model or category of Fintech.
– Fintech category “Consumer Credit” or “Lending”.
This category is one of the most common, and diverse companies have been created around the world, based on this business model. In most of them it is not clear, however, who is backing them financially; not for financing their day to day work, but for the loans they provide.
It is interesting to see that there are also different versions of this business model. Peer to peer lending is one of them. Consumers lend money to other consumers, for different ends and risk levels, therefore different interest rates for the person asking for money apply, and there is more return for the person lending it.
There are also companies
lending money to other companies, to alight cashflow pressure. These type of companies are not very known, as they do not do as much advertising as the companies offering services to consumers.
– Fintech category “Money transfer”.
“Money Transfer” is another popular category. It is more common in regions or countries with solid finances and low currency fluctuation. The United Kingdom is the basis of some Fintech companies with this business model.
Digging deeper into the Fintech categories, we can find, however, that there are companies pursuing Money Transfer from another perspective: Social Money Transfer, peer to peer transfer (not lending!) via the common Social Networks; Bitcoin Money Transfer, providing services to transfer Bitcoin from one country to another; Currency Transfer, a company sends money to another company in a specific currency, etc.
I guess this is the nature of Fintech, Innovation in financial services using new technologies, and from different perspectives. The regulation is the part that is not clear. Especially in the next category.
– Fintech category “Bitcoin and other Cryptocurrencies”.
Companies doing business with Bitcoin deserve probably their own Industry, apart from Fintech. We should consider, however, that these companies could provide the infrastructure for new Fintech technologies, that there is a monetary value on a Bitcoin (as there is in gold or a dollar), that there is money made on Bitcoin processing, and dozens of reasons more. Therefore we should also include them in our categorization.
Unsurprisingly, there are dozens of categories inside Bitcoin and other cryptocurrencies: transfer, process, wallets, vaults, payments, lending, borrowing, infrastructure, etc, etc. And there will be many more for sure.
The common denominator between all the companies following these business models is that they are secretive and most of the time it is not clear where they are based. This is not stopping innovation, but in some years, once the public embraces them and there is more regulation, we will see more companies join the cryptocurrencies wagon.
– Fintech category “Digital Banking”
There are Fintech companies creating services around digital banking. It is a very broad concept, that could also touch money transfers and currency conversion. This category, however, involves a bank directly.
There are services such as: mobile banking (as in transfer and payments done via a consumer banking institution); marketing; targetted services; business intelligence, etc.
This category, if not so exciting and flashy, will probably be more solid than lending and credit to consumers or money transfer.
More categories and business models in Fintech in the next post.