Most Common Types of Fintechs

Let us now consider the most common types of fintechs and how to build them, using the 'building blocks' concept and leveraging partnerships.

Payment Fintechs

A relatively new type of company called a Payment Service Provider or PSP enables the payment of bills, money transfers, and deposits and withdrawals both digitally and physically in a retail shop. They can provide debit cards to customers, who can use them for payments and to withdraw cash.

With QR (Quick Response) codes and smartphones, PSPs are using fewer POS machines. They have a large and growing presence participation in developing areas of the world, like Africa, India, Asia and Latin America, and play an important role in the quest for financial inclusion. One example is NuBank from Brazil which started as PSP and distributor of Mastercard credit cards and developed into a bank that today is one the most valuable fintechs in the world. Today NuBank has more than 100 million customers in Brazil, Mexico and Colombia, and had more than US$50 billion in assets by 2024.

However, payment fintechs are not banks and may not have access to the settlement process of the financial market, depending on each country's regulation. If they do not, they will partner with a bank, and typically a bank that offers Banking as a Service, as we mentioned earlier.

MPesa, for example, has grown to become more than just a payment platform. Operating in eight countries across Africa and with over 57 million customers, it also provides peer-to-peer remittance, cash, and withdrawals through its network of over 550,000 agents. It also partners with banks to provide short-term loans.

Normally, a PSP is the first step for a fintech, as payment services operators are purely transactional and have lighter capital requirements and regulations than banks. These regulations are mainly focused on data protection, KYC (Know your customers), and AML (anti money laundering checks). The successful PSPs often end up transitioning to become banks or financial institutions able to offer a wider range of products to customers.

A PSP normally cannot provide credit, which requires special licenses, but a PSP can provide credit to its customers through agreements with regulated credit providers, receiving a commission on each sale.

Lending Fintech

A fintech can evolve to become a bank, with all the associated capital and regulation requirements, or can apply for specific lending licenses, such as a P2P (peer-to-peer license) or Credit Funding License. A PSP can also potentially become a white label for any credit provider, as NuBank did in the beginning.

An interesting example is Habito. It is a UK digital mortgage start up that offers a platform to help users apply for mortgages and avoid overpaying. The platform makes use of chatbot interfaces and machine learning designed to make the process more efficient and offers access to mortgage products from a wide range of lenders. This is an example of a fintech focused on one step of the acquisition of financial products.

Peer-to-peer Lending (P2P)

Here, fintechs work as an intermediator or two-sided marketplace, where one part will be the lender (as an individual, group of individuals, or institution) and the other is the (individual) borrower. A similar model is Peer-to-Business lending where a match is made between the lenders and a business. Normally, the P2P provides lenders with the credit information of the borrower and suggests interest rates to be charged. However, the lending decision belongs to the lender and not the P2P company. The P2P cannot use its capital for funding, and its share of the revenue will come from the service of advising, linking the two sides, and managing the lending and tracking collection.

These lending models are making it easier for investors to get better returns than those offered in the financial system. The borrower gets access to resources that otherwise would not be available to him/her (for lack of a credit record for example) or at more competitive rates.

Examples of P2P companies around the world are:
USA
LendingClub (USA): One of the largest P2P lending platforms, offering personal and business loans.
Prosper (USA): Focused on personal loans with a marketplace for lenders and borrowers.

Europe
RateSetter (UK): Allows investors to fund loans with a unique provision fund for risk mitigation.
Mintos (Latvia): A marketplace for investing in loans from global loan originators.
Bondora (Estonia): Provides unsecured personal loans and allows investors to fund them.
Auxmoney (Germany): A popular platform connecting borrowers and investors for personal loans.

Asia
Lufax (China): One of the largest P2P lending platforms, backed by Ping An Insurance.
Faircent (India): Facilitates P2P loans for personal, business, and educational purposes.
Funding Societies (Southeast Asia): Active in Singapore, Malaysia, and Indonesia, specializing in SME financing.

Oceania
SocietyOne (Australia): Offers personal loans and allows investors to fund these loans directly.
Harmoney (New Zealand/Australia): Provides unsecured personal loans funded by retail and institutional investors.

Africa
RainFin (South Africa): A platform offering P2P lending for personal and business loans.
Kiakia (Nigeria): Uses AI to facilitate P2P lending for personal and small business loans.
FINT (Nigeria): Connects lenders and borrowers for personal loans.

LatAm
Afluenta (Argentina/Peru/Mexico): A regional leader in P2P lending, connecting borrowers and lenders across Latin America.
Lendico Brazil (Brazil): Provides P2P lending services focusing on SME loans.

Credit Funding License and other credit products

Bank regulators can provide a credit funding license for an individual or a company to use its own funding to lend money to individuals or companies. The funding is limited to the company's money, and it cannot use money from other individuals or companies. It is a model that looks sometimes like the older factoring model. (A factoring company helps businesses get cash quickly by buying their unpaid invoices at a discount. Instead of waiting for customers to pay, businesses sell their invoices to the factoring company, which gives them immediate funds and then collects payment from the customers later, as it can require some collateral.)

Out of this emerges many other credit solutions markets such as small ticket loans, short-term (or payday) loans and other niche operators such as lending to a specific supply chain, or for specific workers.

Examples of companies with such licenses are;

Klarna in Sweden, that provides "Buy Now, Pay Later" (BNPL) options, allowing consumers to split payments into interest-free instalments.
Affirm, in the USA, that offers point-of-sale financing and installment loans to consumers, enabling purchases with flexible payment plans.
Moniepoint, Nigeria, that provides digital payment solutions and banking services, including credit offerings for individuals and businesses.
Lulalend, South Africa, offers online lending solutions, providing fast and easy working capital funding to small businesses.
Creditas, Brazil, provides secured loans, including home equity, auto equity, and payroll-deductible loans.

White Labelling

The white-labelling concept has been around in the finance world for a long time, with traditional banks manufacturing, managing and establishing co-brands or affinity programs such as airline credit cards or supermarket financial products, such as general insurance and credit cards. White labelling is the process where a retailer brands a product that is manufactured or created elsewhere. In the fintech world, we see many operators expanding their offerings by partnering with other companies for distribution. We already see major retailers partnering with banks or PSPs to provide payments, transfer, deposit and withdrawal capacity, and using such solutions to provide credit for the sale of their own products. (This is very similar to the 'buy now pay later' concept.)

As mentioned above, the next step for a PSP is to become a fully licensed financial institution or a bank. The Banking as a Service model is a white-labelling solution par excellence, as the bank allows a fintech to use its infrastructure and build its own brand on top of it. Many successful fintechs end up buying small or medium-size banks to speed up becoming a fully-fledged financial institution. The destiny of fintechs becoming financial institutions or banks is mainly driven by specific country regulations that condition the licenses to the size and risk of the companies. As fintechs grow, the need for a financial institution or bank license may become unavoidable.

An example of this movement is Zopa. It was one of the first peer-to-peer lenders in the UK, which was initially launched in 2005, grew very large, and was granted a full bank license in June 2020. As a bank, is discontinuing the peer-to-peer business.

NuBank started as a PSP, selling MasterCard credit cards and earning commissions without any involvement in the approval, management, or collection process. Over time, as the bank grew and obtained the necessary license, it began issuing its own credit cards, gaining full control over the entire process.

Asset Management/Financial Advisor

In the asset management and financial advisory market, there are several fintechs providing services without charging commissions. Their revenue model is based either on acquiring customer data to offer other products, or on the margin they get on transacting with the various assets and suppliers.

Another type of service emerging is robo-advisory, where algorithms provide active portfolio management that is executed on behalf of the clients. With an automated process, money management providers dis-intermediate human financial advisors, reducing costs and potentially reducing biases from human interactions.

Also, some fintechs are providing virtual assistants to customers and employees, where the customer or the wealth professional asks for a service, return, or specific investment and the "assistant" searches the web, and provides the solution. The "assistant" can also just carry out the transaction as requested, providing the "receipt" of it, or proof of the transaction.

In a little over ten years, US-based robo-advisor Betterment has reached $30bn in assets under management. Betterment provides active portfolio management adjusted to the goals of specific individuals using low-cost ETFs that mirror established indexes to help build diversified investment portfolios with annual management fees as low as 0.25 percent. (An exchange-traded fund or ETF is typically a security that tracks an index or stock but can be bought or sold like a stock.)

Another Fintech doing asset management is Robinhood from the USA, offering commission-free trading of stocks, ETFs, and cryptocurrencies and minimal fees. It offers portfolio management tools and fractional share investing.

In companies such as Betterment, fintechs are also using AI to build customised products/portfolios for customers, based on market analysis and an understanding of customer profiles, which is done without any human interactions. We can debate whether this will be as effective as previous methods: it may yet emerge that AI-driven robots (based on previous "learnings" or investing patterns) will go into a sales frenzy without supervision. This would have serious impacts in the global market.

International Money Transfer and Currency Exchange

Traditionally, international money transfers and currency exchange have been very expensive, with banks and traditional money transfer companies charging up to eight percent or more in fees. For large money transfers, these fees add up quickly. Even worse, traditional transfers are slow, as these businesses could be high-risk, and require multiple transactions with check to complete at each stage. Worse again, as transfers usually go through correspondent banks, no bank could provide transparency about where and when the customer's money was along the route, until it showed up in the final account. This allowed some new players, including Revolut to undercut existing operators. Revolut offered customers one free international transfer per month.

Two Estonians built a company originally called TransferWise (now called Wise) by netting each customer's money transfer requirements. For example, if a customer in France needs to settle a trade in Brazil and one customer in Brazil one trade in France, they net the needs, only exchanging the balance left, and circumventing the laborious process of bouncing money across several banks with each taking a cut. In early 2025, Wise was valued at upwards of $10 billion. (One of the Wise founders was a founder of Skype).

Financial technology companies in this category are offering faster and less expensive international money transfers. Where a bank can take days to transfer money, a fintech can deliver results in a considerably shorter time. Fintechs also allow for different payment modes and multiple platforms, and there are even some companies that don't charge fees. There is the added benefit of increasing transparency as customers, whether they are sending or receiving funds, are kept in the loop and are provided with real-time updates.

Fintechs are also using cryptocurrencies to do exchanges with different currencies, and this could make the process much faster and safer, anywhere in the world.

A few examples: Ripple, doing cross-border payments using its cryptocurrency, XRP, to facilitate liquidity and instant settlements. Stellar is performing cross-border transactions for underbanked populations, using the XLM (Lumens) cryptocurrency. BitPay enables businesses to accept cryptocurrency payments and settle them in local currencies worldwide. Coinbase Commerce provides tools for businesses to accept cryptocurrency payments globally. Many fintechs are starting to enable customers to hold and use stablecoins whose price is usually tied to the US dollar.

Insurance

The companies in this category, also called Insurtechs, take advantage of new technologies to reinvent business systems in this digital era, creating financial inclusion and a more personalised method of underwriting and pricing. While traditional insurance models cluster customers into risk categories, Insurtech start-ups are trying to use real data instead of statistical models to create smaller and more tailored risk categories. This makes it easier for them to offer a more competitive pricing strategy by acting as a more personalised "aggregator".

The UK Insurtech Bought by Many uses search and social media data to sell insurance and disrupt insurance distribution. For instance, it is the first UK pet insurer to offer online form-free claims. The company designed its policies using over 40,000 customer reviews and as a result, its insurance policies boast features that are new to the market. It can also avoid adding features that clients disliked about other policies.

Fintechs are also innovating in distribution by using new technologies such as apps to reach customers that are underserved by insurance. They are using products and platforms that are faster, more intuitive, and tailored to groups of individuals. For example, the Indian insurance aggregator Policy Bazaar provides information on life insurance, health insurance, and Property & Casualty insurance, and serves as an insurance marketplace for individuals throughout India. It has been valued at more than $2.5bn.

Other opportunities being sought in the Insurance market are claims handling, quoting capabilities and multi-platform brokerages.