How does fintech make money?
Atie J El Mouallem
Fintech firms have taken the financial sector by storm. It is no surprise that everyone wants to know the strategy and the model through which fintech firms make money. In this article, we will take a closer look at understanding how does fintech make money. The article will also make an attempt to provide real life examples of fintech firms which are operating on different business models.
The growth story of Fintech industry in GCCG
The fintech industry has experienced an exponential growth in the last few years globally. This has led to an unprecedented volume of investments in this sector coupled with a slew of new fintech players in the market. The perception is that, in the first few years, most startup firms are focussed on growth rather than scaling their profits. Yet, analysts have observed the operation of certain business models which focus on generating revenue. Success of a fintech firm is also dependant on the presence of a robust fintech ecosystem. The ecosystem is composed of governments, financial institutions, and entrepreneurs. However, fintech ecosystems are not fully developed in the GCC region though the future of fintech firms looks promising in GCC.
Over the past decade, fintech startups in the region have raised over USD 100 million in funding, and investment is predicted to double by 2020, according to the State of Fintech report. The report also suggests that the number of fintech firms will more than double again to 250 by 2020.
Business models of fintech firms
This is one of the most popular models involving three key players. These players are the project initator (the one who needs funding), the contributor (the one who will contribute to the project) and the moderator (the one who acts as an intermediary between the initator and the contributor). There are also different types of crowdfunding models which can help the fintech firm generate revenue. These can be broadly classified into donation based, rewards based and equity based models.  Crowdfunding model of fintech firms have a potential for growth in the GCC area. It has been instrumental in providing an option for a region hit by liquidity crunch. An example of the crowdfunding model is Silatech. This firm has launched a crowdfunding platform dedicated to funding young Arab entrepreneurs.
2- P2P Lending
This is also an extremely popular model for various fintech firms. Adoption of this model has reduced the amount of arduous paperwork to a great extent. The USP of this model is that it creates a venue where individuals can earn interest by lending money to other individuals. In return, the fintech firms take a small fee for brokering the connection. Instead of going through multiple rounds of checks and compliance associated with borrowing money from a traditional bank, borrowers have the ability to secure loans by presenting compelling stories of why they need capital. The two key players in the GCC and MENA region are Beehive and Liwwa. These two firms have addressed one of the pressing issues plauging the GCC market — funding of SMEs. SMEs prefer the peer to peer lending model as it is more efficient and competitively priced.
3- Capital Market
Fintech firms are collaborating with almost all aspects of capital markets. The chief areas of collaboration have been investment, foreign exchange, trading, risk management and research. Trading FinTechs are helpful for investors and traders connect as they are connected and are benefitted mutually by sharing technology, buying and selling commodities and monitoring real time risks.
This is an emerging model which is connecting the beneficiaries with the insurers directly. Insurance companies have tapped into the potential of the fintech industry and adopted fintech innovation as part of their corporate strategy.  Insurance firms are gladly embracing the fintech revolution to provide a better range of products and services to their customers. This is helping the insurance firms market their products in a more efficient manner and adoption of technology is making availability of insurance much cheaper. 
One of the examples of insuretch in GCC is Democrance which translates into democratizing insurance. Democrance was found in 2015. Very aptly names, it connects insurance providers with those that need it the most via their mobile phones.  While the company does not sell the insurance policies directly, it offers a digital platform connecting low-income customers to insurance providers in partnership with telecommunications companies.
As demonstrated above, there are various interesting models through which fintech firms generate revenue. Howeverm, this is only the tip of the iceberg as fintech is an emerging area. With future innovations, one can expect a lot more scalability in the fintech industry through the adoption of the innovative models in future. While the jury is still out on whether fintech firms are profitable, the examples above definitely demonstrate that it is possible to generate money in an industry which relies so heavily on technology.
Fintech has a promising future in the GCC and MENA region. As per the research carried out by Mena Research Partners, the private funding investments in GCC based fintech firms is startups is expected to reach $2 billion in the next decade.  There are various government and regulatory initiatives which will ensure a more robust and fulfiling environment for the fintech firms. The primary driver for the growth story of the fintech firms is the consumer experience and it will definitely give rise to new and more innovative functioning of fintech firms. The traditional institutions will have to embrace fintech firms with open arms in order to surive in the future market. With the increased innovation in the fintech space, there will be a surge of competiton as well.