KEY POINTS

  • Most fintechs are struggling to turn a profit. Despite having innovative ideas and live products that are successfully disrupting the financial services industry, these fintechs' business models are increasingly proving to be fundamentally flawed.
  • Each fintech segment contends with unique challenges. Neobanks are some of the most expensive fintechs to launch, and robo-advisors are struggling with customer acquisition. Money transfer firms have lured in customers with low fees but are now struggling to monetize and scale, and while marketplace lenders have achieved scale, wider economic changes have required shifts in their business models.
  • Fintechs are tackling these challenges in a number of ways. Some firms are employing multiple tactics to reach profitability. These include partnering with incumbents, diversifying funding sources, acting as third-party suppliers to other financial services firms, adding new product lines, and seeking global expansion.
  • Not all fintechs have failed to turn a profit, nor do all desire to turn one. This report focuses on the trend of fintechs struggling to monetize and turn a profit despite their desire, or need, to do so. Fintechs that are achieving meaningful profits, and those with other end goals, are not the subject of this report.
  • There a number of considerations that fintechs and their investors must make, and several actions they must take, to get on the path to profitability. These include deciding whether to focus on scale, establishing a stable business plan, and assessing the benefits of varied funding sources.

Introduction

Many fintechs share a common impediment — they aren't profitable. Despite having innovative ideas and live products that are successfully disrupting the financial services industry, these fintechs' business models are increasingly proving to be fundamentally flawed.

There are a number of reasons why fintechs aren't turning a profit: Some focus too intently on scaling at the expense of attaining profitability, while others fail to consider how a product could be monetized in the first place. These issues have impacted a variety of fintech segments, including marketplace lending, money transfers, robo-advising, and neobanking.

Further adding to fintechs' woes, the flow of VC investment is slowing. This means fintechs have to think on their feet; if they can no longer rely on investment dollars to sustain them, they must find a way to make their income exceed their expenditures, and fast.

This [...]