How Fintech Companies Earn Revenue Beyond Simple Transaction Fees

Brief Summary:

Fintech companies explore different revenue models to generate income:

1. Transaction Fees (the most common one among all)
2. Interchange Fees (usually from card payments)
3. Lending and Loan Interest
4. Subscription Fees
5. Foreign Exchange (FX) Markups
6. Float Income (interest on stored money)
7. Merchant Service Fees
8. Advertising and Sponsored Listing
9. Affiliate Commissions
10. Data Monetization (in an ethical and legal way)
11. API and Infrastructure Licensing
12. Investment and Wealth Management Fees
13. Crypto Spreads and Blockchain Fees
14. Late Fees and Penalties
15. Account Maintenance Fees
16. Insurance Commissions
17. Cross-Selling Financial Products
18. White-Label Solutions
19. Compliance and KYC Services
20. Cashback Breakage
21. Interest Rate Arbitrage
22. Premium Cards and Physical Products
23. Government and Enterprise Contracts
24. Risk and Fraud Protection Fees
25. Marketplace Fees
26. Interest on Escrow and Settlement Accounts
27. Exit Events (usually indirect revenue).

However, it's worth noting that no single fintech uses all these methods at a time. Most combine 3 to 7 of these listed revenue streams to survive in the competitive market.

Fintech companies generate revenue through a diverse range of models. These revenue streams often operate "invisibly" to the end-user, allowing many services to appear free. But trust me, beyond simple transaction fees that many of us know today, there are several ways fintech companies make money from the financial services they're rendering, and that's what we are going to be uncovering in this explainer.

Many fintech companies around the world are still in their early stages, with most investment activity focused on startups at the seed and Series A levels rather than fully established firms. Because many of these fintechs are still young, they often prioritize rapid growth and user acquisition over fully optimizing all possible revenue streams. As a result, early-stage fintech companies are commonly known for charging small fees on services such as payments, transfers, or withdrawals.

However, as the companies grow and serve millions of users, they shift to multiple revenue streams that help them stay profitable and scale faster. Well-established fintech companies explore between 3 and 7 revenue streams to generate income. This article explains, in simple terms, how fintech companies earn revenue beyond basic transaction fees, and why these hidden income sources are just as important to their business success.

Different Revenue Models in the Fintech Industry

Transaction fees are small charges that fintech companies take each time you use their app to perform a financial action. Even banks and other financial institutions often charge transaction fees. It's the most common way of generating revenue for banks, fintech, online payment platforms, and other financial institutions. Anytime money moves from one place to another, a fee is usually involved, even if it looks very small.

The most common financial actions that attract transaction fees are fund transfers and receiving money, bill payments, airtime and data purchases, cash withdrawal via automated teller machine (ATM) or point-of-sale (POS) terminal, and paying with a card. The fintech processes that transaction using banks, payment networks, and technology systems. Those systems cost money to run, so the fintech charges a transaction fee to cover the cost and also make a profit.

Although, you might be thinking, will the gain made on transaction fees be enough to cover the infrastructure bills and still make a profit? Well, the transaction fees may look small (usually below $1), but when millions of users make transactions every day, those small amounts add up to a large income. This is why fintech companies focus heavily on high transaction volume. And the most important thing you need to know about this charge is that end-users pay directly for transaction fees.

Sometimes, merchants pay when the end-users pay with cards on POS or at ATMs. So even when a transaction looks “free,” someone is still paying. Now, let's be practical. If a fintech charges $0.5 per transfer and users make 1 million separate transfers in a day, that's $500,000 in one day from transaction fees alone. As you can see, transaction fees are the backbone of fintech revenue. They are small, but they're also frequent charges that power the business even when users hardly notice them.

Interchange fees, also known as swipe fees, are fees that fintech companies earn when you pay for something using a debit or credit card. When you use your card to pay at a shop or online, several parties are involved: the customer (you), the merchant (seller), the bank or fintech that issued your card, and the payment network that backed the card (like Visa or Mastercard).

The merchant pays a small fee for accepting card payments. That fee is shared, and a portion goes to the fintech or bank that issued the card. This portion is called the interchange fee. However, note that the interchange fees are not charged directly to end-users, but sometimes, the merchant hides the fee inside products' prices, and somehow, the end-users (customers) are technically paying for the fee.

This is because interchange fees affect merchants' operating costs, pricing strategies, and their business model. Overlooking these fees can generate unnecessary expenses that reduce profits for merchants. So even when card payments feel “free,” someone is still paying, and the fintech is still earning money. Every swipe, every tap, and every online card payment earns fintechs that issue cards a small amount.

Interchange fees become a steady and predictable income stream as millions of card transactions are carried out daily. Let's be practical. Assuming a merchant pays 2% on a customer's card payment, part of the transaction fee goes to the payment network, part goes to the acquiring bank, and the remaining part goes to the card issuer (the fintech).

This is why fintechs encourage users to pay with cards, offer cash back or rewards, and promote contactless payments. Because they understand that more card usage is equal to more interchange revenue. In a nutshell, interchange fees are behind-the-scenes earnings fintechs get whenever their card is used. You don’t see it, but it quietly powers many fintech business models.

Lending and loan interest is one of the biggest ways fintech companies make money. It simply means fintechs give out money as loans and earn profit when borrowers pay back more than they borrowed. Lending is the act of providing money with the expectation of repayment, while the loan interest is the fee charged by the lender to the borrower for the use of that money. It is the primary way lenders are compensated for the loss of use of their funds and the risk of default.