How to model your fintech revenue streams

To model your revenue, you first need to select a primary pricing strategy—like charging a small fee per transaction or a monthly subscription—and then build a simple financial forecast based on how many customers you expect to attract and how they'll use your service. This model is the financial backbone of your business plan and is essential for securing investment and measuring your success.

What is a revenue model?

Think of a revenue model as the blueprint for how your business will make money. It answers the fundamental question: "Who will pay for my service, how much will they pay, and when will they pay?" For a fintech company, a clear and realistic revenue model is everything. It proves your business is viable and gives you a target to aim for as you grow.

Common fintech revenue models

Most fintech companies use a combination of the following tried-and-tested models. Understanding them is the first step to choosing the right one for you.

1. Transaction Fees

This is one of the most straightforward models. You take a small percentage or a fixed fee from each transaction that passes through your platform. It's a classic "pay-as-you-go" approach.

• How it works: A customer makes a payment, transfers money, or completes a trade, and you charge a fee for facilitating it.
• Examples: Payment gateways like Stripe or Adyen, or cryptocurrency exchanges like Coinbase.
• Best for: Businesses that process a high volume of transactions, such as payment platforms, investment apps, or remittance services.

2. Subscription (SaaS - Software as a Service)

With a subscription model, users pay a recurring fee (usually monthly or annually) for ongoing access to your product or service. This provides you with predictable, stable revenue.

• How it works: Customers sign up and pay regularly, often with different tiers of service (e.g., Basic, Pro, Enterprise) offering more features at higher price points.
• Examples: Accounting software like Xero, or advanced personal finance management tools.
• Best for: Services that provide continuous value, such as financial planning tools, accounting platforms, or data analytics services.

3. Interest Rate Spreads

This is the traditional banking model, adapted for the digital age. It involves making money on the difference (or "spread") between the interest you pay out and the interest you earn.

• How it works: You might take customer deposits and pay them 1% interest, while lending that money out to other customers at 5% interest. The 4% difference is your revenue.
• Examples: Neobanks or digital lending platforms.
• Best for: Fintechs that operate in lending, digital banking, or hold customer funds. This is a more complex and highly regulated model.

4. Freemium Model

The freemium model works by offering a basic version of your product for free to attract a large user base. You then aim to convert a small percentage of these free users into paying customers by offering premium features, an ad-free experience, or higher usage limits.

• How it works: Users can access core features for free, but must upgrade to a paid plan for advanced functionality.
• Examples: Budgeting apps that offer basic tracking for free but charge for detailed reports and forecasting.
• Best for: Products with a very large potential market where the core free service is valuable enough to attract millions of users.

How to choose the right model

Don't just pick one at random. Ask yourself these questions:

• Who is your customer? Are they a business that can afford a monthly subscription, or an individual who would prefer small, infrequent transaction fees?
• What value do you provide? If you provide ongoing, daily value, a subscription makes sense. If you facilitate a one-off action, a transaction fee is more appropriate.
• What are your competitors doing? Analyse their pricing. Can you offer something more competitive, or is there a reason they've chosen their model?

Building your first revenue projection

Once you've chosen a model, you need to forecast your revenue. This involves making educated guesses about the future. Don't worry about getting it perfect; the goal is to create a realistic and logical plan.

1. Identify your key drivers: What are the 2-3 metrics that will directly generate revenue? For a transaction model, this would be the number of users and their transaction volume. For a subscription model, it's the number of subscribers.
2. Make realistic assumptions: Based on market research, how many users do you think you can acquire each month? What percentage of your freemium users will convert to paid subscribers? Be conservative here.
3. Create your revenue formula: Write down the simple maths. For example:

   Monthly Revenue = (Number of Paying Subscribers) x (Monthly Subscription Price)

4. Project it over time: Open a spreadsheet and forecast these numbers month by month for the next 12-24 months. This will show how your revenue grows as your user base expands.

A simplified example

Let's imagine a new payment app using a transaction fee model. They charge a 1.5% fee on every transaction. Their projection for the first three months might look like this:

Metric	Month 1	Month 2	Month 3
Active Users	500	1,500	3,000
Avg. Transaction Value per User	£100	£120	£120
Total Transaction Volume	£50,000	£180,000	£360,000
Revenue (at 1.5% fee)	£750	£2,700	£5,400

This simple model shows how revenue grows with user adoption and provides a clear financial target for the business.

Tip: Your initial model will almost certainly be wrong, and that's okay. The purpose of this exercise is to think through the mechanics of your business and create a plan that you can test and adapt as you learn more about your customers.