How fintech startups make money

A fintech (financial technology) company uses software to offer money services: payments, loans, insurance, investing, accounting. A business model is simply the answer to one question: who pays, how much, and for what. In fintech that answer is more varied than in most industries, because money touches many parties at once: the customer, the merchant, the bank, the card network and the regulator.

One useful habit is to ask who the customer is and who actually pays. In many fintech apps the user pays nothing. The money comes from the bank, the merchant or the lender behind the app. That is why a payments app with crores of free users can still be a real business, or a very expensive one, depending on where the revenue sits.

Payments companies sit in the middle of a transaction and take a small cut. For card payments, the merchant pays a fee called the merchant discount rate (MDR). Part of it goes to the customer's bank as interchange, part to the card network such as Visa, Mastercard or RuPay, and the rest is kept by the payments company that handles the merchant. The slice kept is usually a fraction of one percent to about two percent of the sale, which is why volume matters so much.

UPI is different. MDR has stayed at zero for most UPI payments between people and small merchants, so apps cannot charge the way they do on cards. A small fee on some larger merchant payments was reported to start from October 2026, so check the latest rules. UPI apps therefore earn indirectly: from selling loans and insurance to users, from merchant services such as soundboxes and payment gateways, and from advertising or rewards deals. Check the current policy, as it has been debated more than once.

Payment gateways and business-banking platforms for companies, such as Razorpay, charge merchants per transaction and then add paid extras like payouts, subscriptions and working-capital loans.

A lender earns the difference between what it pays for money and what it charges borrowers. This is called net interest margin. It also collects processing fees and sometimes late fees. The risk is that some borrowers do not repay, so a lender's real profit is its margin minus the losses from defaults and the cost of collecting.

In India, lending is regulated by the Reserve Bank of India (RBI). A startup can hold its own licence as a non-banking financial company (NBFC), or it can partner with a bank or NBFC that lends on its books while the startup finds and scores borrowers and collects payments. The RBI's digital lending rules require the loan to flow directly between the borrower and the regulated lender, and they limit how much default risk a startup can take on through guarantees. Partnerships earn a service fee, while owning the loan earns interest but needs more capital.

Newer variants include buy-now-pay-later, which earns a fee from the merchant plus interest if the customer delays, and loans against assets such as gold or mutual funds, which carry lower risk and lower rates.

Stock-broking apps earn brokerage on each trade, either a flat fee per order or a percentage. Zerodha is the well-known example of a low flat-fee approach. Interest on margin money, fees on account services and a share of fees from mutual fund companies (called commissions on regular plans) are other sources. Direct mutual fund platforms often charge a subscription or nothing at all, and earn instead from adjacent products.

The weak point is cyclical income. Trading volumes rise and fall with the market, so revenue can drop sharply in a dull year. Regulators such as SEBI have also changed rules on fees and on derivatives trading, which can shift revenue quickly.

Insurance marketplaces such as Policybazaar earn a commission from the insurer when they sell a policy, often a large share of the first year's premium and a smaller amount on renewals. Their business depends on sales volume and on insurers' commission rules, which the insurance regulator IRDAI limits.

A third group sells software, not financial products. They offer accounting tools, lending software, fraud checks or core-banking systems and charge a subscription or a per-use fee to banks and businesses. This revenue is more predictable and does not carry credit risk, but it usually grows more slowly than a lender's.

Look at the take rate: revenue as a share of the money flowing through the platform. A payments company with a very thin take rate needs enormous volume to cover costs. Look at credit losses for lenders: how much of the loan book turns bad. Look at the customer acquisition cost against the revenue each customer produces over time. And look at what share of revenue comes from the core product versus a single partner, since losing one bank partner can stop a lending business.

Also ask whether revenue is recurring (subscriptions, repeat loans) or one-off (a single insurance sale). Investors in India pay close attention to profitability after the cost of risk, not only to the size of the user base.

The common risks are regulatory change, because the RBI, SEBI and IRDAI can alter fee and lending rules; credit losses when the economy weakens; fraud; and dependence on a few bank partners. Because money is involved, trust is also fragile: one security breach can end a young company. Rules on data are tightening too, and fintechs hold some of the most sensitive data there is. This guide is general information, not financial, legal or tax advice. Check with a professional before acting on any rule mentioned here.