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For Fintech Startups, Winning Customer Trust Is All About The Revenue Model

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Omidyar Network

An enterprise’s revenue model is, of course, vital to success. But for fintech entrepreneurs, it’s especially crucial. That’s because, as research shows,  consumers point to financial companies’ revenue models--say, charging high fees that eat into investor gains or pushing proprietary products--as a top reason for not trusting such enterprises. At the same time, winning customer confidence is particularly important for fintech companies.

The bottom line: Fintech startups have to focus on not just building a revenue model, but on creating one that fosters trust.

With that in mind, Omidyar Network and Oliver Wyman just released Breaking New Ground in Fintech: A Primer on Revenue Models that Create Value and Build Trust, a report that investigates revenue practices of 350 fintech startups, with a special focus on 80 companies targeting mass market consumer-oriented services and products, as opposed to higher-end clients.

According to the report, the majority of such enterprises make their money by charging consumers. But, for one thing, they’re very above board about their pricing. In addition, “They go above and beyond, not just being transparent about what they’re charging, but also emphasizing value clarity--showing folks how they’re better off,” says Sarah Morgenstern, Omidyar’s investments principal.  That means explicating and quantifying their benefits, anything from reducing stress to helping to avoid late fees or saving more money.

In some cases, it also involves giving consumers more power over what they pay. Aspiration, a socially conscious mobile-based investment firm, for example has a “pay what is fair” model for everything from checking accounts to mutual funds. “It gives consumers more agency and control and leaves them options if they don’t think they’re getting enough value,” says Morgenstern.

In other cases, startups make their money from third parties. That can be through advertising and referrals where a lender, say, or grocery store pays for advertising or on a per click basis. Propel, for example, has an app that helps food stamp recipients make better use of their benefits. But it also provides them access to coupons from grocery stores and to job ads. The network of referral partners allows the app to address the financial needs of users, while also making money for the company.

Other companies target third parties, like employers or government agencies, that can benefit from consumers using their tool. An app might help employees take advantage of pre-tax benefits, helping them to save money and, as a result, to be more productive.

Researchers also found that some fintech startups, at some point, move from one source of revenue to multiple streams. According to Morgenstern, companies that do so raise two times the amount of funding on average than enterprises with one source.

Other findings:

  • About three-quarters of fintech entrepreneurs rely on one material source of revenue (such as charging consumers directly). One quarter of surveyed companies rely on multiple sources of revenue
  • Sixty-five percent of fintech startups charge consumers directly for their services.
  • Startups that have raised the most funding to date build a lower cost (and often better) version of an existing financial product that consumers already pay for today, not a new solution with an unfamiliar value proposition.

Ultimately, the fintech sector is practically bursting with opportunities for social enterprises. Morgenstern points to research showing that only 30% of Americans are financially healthy—not struggling with anything from how to pay the bills to saving for retirement. “There’s a real societal challenge, as well as a market opportunity,” says Morgenstern.