Fintech Business Models

Applied Canvas Method and Analysis of Venture Capital Rounds

Matthias Fischer

• Publisher: De Gruyter
• Year: 2021
• ISBN:
  9783110704938
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Finanzas

This book on fintechs shows an international comparison on a global level. It is the first book where 10 years of financing rounds for fintechs have been analyzed for 10 different fintech segments. It is the first book to show the Canvas business model for fintechs. Professionals and students get a global understanding of fintechs. The case examples in the book cover Europe, the U.S. and China.

Teaser of the OPEN vhb course "Principles of Fintech Business Models": https://www.youtube.com/watch?v=UN38YmzzvXQ

1 Fintech markets and players

1.1 The fintech market segments

Fintechs are financial technology companies that are replacing traditional banking services. They offer services in the areas of payments, investment, crowdfunding, credit, factoring, blockchain, cryptocurrencies or personal finance management. The history of fintechs is very new, as most of the fintechs did not exist before 2007. Of course, digital banking services have already been offered for quite a while, especially by direct or internet banks. From April 1992 until April 2020 more than $102 billion in venture capital worldwide have been invested in 8,448 financing rounds.¹ But the bulk of venture capital investments in innovative fintech start-ups just began after the subprime crisis and drastically increased during 2014 and 2015. Thousands of small and young companies are trying to take over parts of the value chain in banking with the help of digital business models. Scalability plays an important role in all fintech companies. In many cases the most important user interface is the mobile phone, rather than – as in traditional banking – the bank branch or the desktop browser platform. The new business models put a strong emphasis on customer-focused services and usability, and users are invited to be an active part of the financial service, for example, in crowdfunding or in social trading.

Figure 1.1 categorizes fintech business models according to the services typically provided by banks, insurance companies or financial services providers. Different fintech classifications exist in the academic literature.² A primary service offered by banks is the management of client accounts and client payments. Since payments constitute a transaction-oriented business in banks, fintechs started to penetrate this field early on, for example, with alternative payment methods. PayPal, Adyen and Alipay are prominent fintechs in the field of payments. Cryptocurrencies like Bitcoin (BTC), Ethereum (ETH) and Crypto Wallet Services belong to the field of accounts and payments because not only are they an instrument for speculation, but they also aim to eventually replace traditional payment services. Finally, the field of personal financial management (PFM) tools belongs to the traditional banking field of account and payment services. PFM tools from Mint by Intuit, for example, analyze the payment streams of users, categorize the cash-flows and sometimes even derive recommendations for the saving, investment and financing behavior of users.

(Source: own illustration adapted from Fischer 2017, p. 184)

Figure 1.1: Classification of fintech business models.

The fintech segment of financing includes crowdfunding, factoring and credit. Crowdfunding platforms like Kickstarter ask the individual users to finance the needs of other users on the platform. Factoring fintechs offer services along the factoring value chain to retail and corporate clients. In a factoring transaction, receivables are sold to a third party after deducting a discount in order to convert the receivables into cash quickly. And fintechs in the credit business facilitate loans of all sizes, sometimes for businesses, via a mobile phone app.

In the investment sector we can find fintechs that are active in robo-advisory, social trading, savings and pension plans. Betterment and Wealthfront, based in the U.S., are among the first fully automated asset managers or so-called robo-advisors. Vanguard‘s robo-advisor has one of the highest volumes worldwide in assets under management, with a total of $161 billion as of April 2020.³ Raisin, based in Berlin, Germany, started in savings but has expanded to other areas of financial investments. And eToro and wikifolio are among the social trading fintechs that provide the option of automatically following other retail investors or so-called signal providers.

Many fintechs also developed as service providers for banks or other fintechs; they provide the infrastructure for various financial services and products.⁴ Fintechs like IDnow enable identification and authentication services for banks and insurance companies via video identification. Other infrastructure fintechs offer blockchain services to enable banks to issue obligations or bonds. As the internet permits users to easily compare the prices and services of financial products, some fintechs simply specialize in the comparison of financial services. They have become particularly powerful since they have first contact with the client and determine the gateway for the digital sales channels of banks and insurance companies. Examples are wallethub.com, comparexpress.com, check24.de and scout.de. A new fintech segment offers Big Data & AI services.

Insurtechs such as Ethos Life offer services around the value chain of insurance companies in the form of marketplaces, online product offerings, Peer-to-Peer (P2P) services or data providers on customers and potential customers. Another area with close ties to the business fields of banks and insurance companies is the segment of proptechs. Proptechs such as U.S.-based Opendoor or Compass are active in real estate brokerage, real estate financing and real estate insurance. Proptechs offer comparison services as marketplaces, suppo...