In recent years, the emergence of fintech has generated massive attention by disrupting the global financial landscape and opening doors to diverse innovations. It has become imperative for business owners and startup founders to understand the latest and most profitable fintech business models to streamline their business offerings.
In this article, we will explore the latest fintech trends taking the financial industry by storm and paving the way for economic transformation.
Neobanking
Neobanks are digital-only banking platforms that offer exclusive online banking services without the need for visiting physical offices. The integration of neobanking technology allows customers to onboard digitally, manage their finances, and track activity through a smartphone, computer, or tablet.
Strengths of neobanks
Because neobanks operate online and on a 24-hour clock, their services can be accessed at any time, anywhere in the world, making banking more accessible and affordable.
Since there are no physical branches to maintain, neobanks have lower operating costs. As a result, there are no withdrawal fees or monthly maintenance fees.
The US is among the top digital-only bank account users at 29.8 million. This number is projected to reach a staggering 47.8 million in 2024 — constituting an estimated 17.9% of the country’s population.
Weaknesses of neobanks
However, like every business model, neobanking has its drawbacks. One of the drawbacks is trust issues. For users who are used to banks with large offices and staff as factors of stability, the innovative model of online banking may seem unreliable.
Secondly, even though you are implementing an online bank, you still need to meet all the regulatory requirements and get licenses just like a regular bank. It is also worth mentioning the difficulty of funding neobanking projects. Usually, investors from the traditional financial world consider such investments too risky, and investors from the IT industry see such projects as not technological enough. Therefore, you will have to look for entrepreneurs who understand two fields at the same time and can assess the prospects of neobanking.
Development prospects
Neobanking is definitely one of those emerging fintech trends that should be followed given the growing demand for the digitization of financial services. The neobanking model helps fintechs to quickly enter the market, often without the need to build their own banking infrastructure from scratch.
Open Banking
Another trend in the world of banking is open banking — which is a banking practice that grants third parties unfettered digital access to financial data through the use of APIs. Of course, this happens with the consent of the bank’s customers.
Strengths of Open banking
As the global economy develops, open banking is experiencing popularity because it enables quicker and safer transactions anywhere in the world. Also, it gives customers more chances to manage their accounts with the aid of advanced technology tools.
With customers’ permission, fintechs can access customers’ transaction history to help discover suitable products and services to improve their personalized experience without going through the typical strenuous process. Some notable open APIs projects include Plaid, Tink, Stripe, and Cross River.
Weaknesses of Open banking
Like most financial innovations, open banking faces trust issues due to the transfer of user data to third parties. When working with such a startup, you should be sure of advanced security and data protection mechanisms.
Also, servicing open banking startups is quite expensive and it requires a well-thought-out monetization model.
Development prospects
The development of open banking has opened up incredible opportunities for fintech startups to grow rapidly. In turn, banks get the opportunity to expand the list of their own services and improve the customer experience thanks to cooperation with fintech companies.
May 2022 saw a record 1 billion API calls, demonstrating a substantial increase in open banking users. Open banking is here for the long haul as more banks, financial institutions, and fintechs expand their service offerings.
Asset Management
WealthTech and investment are among the most sought-after financial areas in the US. According to IBIS World’s report, there are about 162,745 portfolio management firms in the US as of 2022.
Strengths of asset management model
The emergence of alternative ways of raising capital has significantly lowered the threshold for new players to enter the market, allowing even those with small savings to generate returns.
Asset and investment management providers offer to invest in a wide range of assets such as stocks, property, cryptocurrency and others. For instance, crypto exchange app development opened up a whole market of alternative capital growth through digital asset trading.
Asset management companies make profit through fees they charge for managing their clients’ financial assets. This model opens the way to a solvent audience and is in high demand on the market.
Weaknesses of asset management model
Asset management services require great expertise in finance, because in the event of failure, not only you but also your clients will suffer losses.
Also, this business is associated with high risk, because there is no strategy that allows you to always win on the market.
Development prospects
In order to reach a larger number of customers, many asset management companies resort to automation, in particular with the help of AI. The use of artificial intelligence technology is a promising step, but it is still in its early stages. Current use cases of using this technology in the investment industry include improving the accuracy of predictions and forecasts, enhancing customer experience, automating decision-making processes, etc.
P2P Lending
In the conventional banking system, borrowers go to banks to apply for loans, and banks then lend to them with interest. This type of system has been the norm for ages. However, the Peer to Peer (P2P) lending system comes into play by allowing people to borrow money from private lenders instead of banks.
Strengths of peer-to-peer lending
P2P lending enables investors to establish direct connections with businesses or individuals, resulting in low-cost operations compared to traditional approaches. It allows lenders to profit from their investment in another person, as they can accrue money from an interest rate.
Many skeptics express doubts about the security of P2P lending and the quality of protection of customers’ financial information. But by incorporating advanced security mechanisms to protect lenders’ and borrowers’ financial and personal information, P2P platforms overcome this prejudice. That’s why starting a P2P lending platform it’s crucial to enlist the support of an expert development team capable of providing quality fintech software implementation.
Weaknesses of peer-to-peer lending
P2P lending provides less control over the process than traditional models. Companies should develop an effective KYC process to prevent the use of the platform for unauthorized activities such as scams, money laundering, etc. This can cause high costs for support and resolution of disputes between users.
Also, the main benefit of peer-to-peer lending for users is also the main challenge for platform owners. We are talking about fees. Low or no fees attract users, but it’s not profitable for the business itself. Therefore, you need to look for alternative ways to secure monetization.
Development prospects
The global peer-to-peer (P2P) lending market is expected to surpass $705.81 billion by 2030 from $83.79 billion in 2021 according to Precedence Research, so it’s quite a dynamic market worthy of the attention of fintech business owners.
Payment Getaways
Any business operating online needs a payment gateway to make the payment process easier. A payment gateway is a technology that facilitates online transactions while safeguarding sensitive data.
Strengths of payment gateways
The payment gateway model requires the merchant to pay a percentage or fixed fee for each transaction. The transaction mode affects the fee amount. As a result, businesses that experience continuous transaction flow produce consistent profits for the payment gateway.
With the development of online businesses, the demand for payment gateways is growing. Therefore, when creating an offer beneficial for customers, you have every chance of success.
Weaknesses of payment gateways
The main difficulty of bringing a new gateway to the market is that you will have to compete with companies like PayPal, which have been in business for a long time and have a high level of loyalty from users. Also, regulatory compliance can be a challenge since there are a lot of regulations that your business has to meet.
Development prospects
Despite a large number of players on the market, there is still room for new startups able to offer favorable conditions to their customers. Some popular payment gateways include PayPal, Square, SecurePay, Worldpay, and Braintree.
Wrapping Up
Fintech is a rapidly expanding sector that offers endless opportunities to optimize our financial systems. Traditional industries are leveraging these models to stay competitive and boost their bottom lines, including payments and transactions, customer service, lending, and account management.
No matter what model you choose as pertinent to your business, a fintech product is, first of all, a software product. So, you need to enlist the support of experienced developers to create a quality and easy-to-use app or platform. Only such a product can bring profits and drive your business forward. A well-thought-out business strategy and high-quality technical implementation are the keys to success in the market.
Author,
Maksym Bieliai
BA Team Leader, Fintech Market Analyst at MobiDev