The Fintech Profitability Illusion: What You Need to Know Before Trusting Your Money

N26, the German digital bank, recently achieved its first quarterly profit in Q3 2024, over a decade after its inception in 2013. This milestone comes on the heels of the German financial regulator BaFin lifting growth restrictions in June 2024, which had previously slowed the bank’s ability to onboard new customers. While this success is a positive signal for the company, it highlights the long and arduous journey fintech providers face in turning profitable.

Revolut, a UK-based fintech founded in 2015, offers a similar story. After six years of operation, it reported its first net profit in 2021, and by 2023, it recorded a substantial ￡344 million in profit. While these numbers are impressive, they mask the financial and operational challenges these companies endured to reach profitability.

These cases serve as a reminder that profitability in the fintech world is not a given. For every success story, there are countless others struggling to stay afloat. The reality is that fintech ventures require significant time and resources to achieve profitability, particularly when targeting lower-risk clients. Attracting this segment involves substantial investment in customer acquisition, compliance, and operational scaling, which are not only expensive but also time-sensitive.

What Does This Mean for You as a Customer?

When placing your trust—and your money—in new fintech providers, it’s important to recognize the risks involved. Many new entrants to the market operate under tight margins and face mounting pressures to generate revenue. This can lead to two critical risks for customers:

1. The Risk of Closure If a fintech provider cannot sustain itself financially, the risk of closure becomes very real. This can disrupt your financial operations, leaving you without access to your funds until a resolution is found—or, in the worst cases, without them entirely.
2. Higher-Risk Client Bases To stay operational, some fintechs may shift their focus to higher-risk clients, which can have a ripple effect on their overall risk profile. This introduces additional scrutiny from regulators and increases the likelihood of operational interruptions, frozen accounts, or worse, loss of funds.

Why It’s Crucial to Plan Strategically

The takeaway here is clear: fintech ventures operate in a highly competitive market, and while some succeed, many do not. This is why it’s essential to approach your financial decisions strategically, especially when dealing with new or less-established providers. Understanding the operational and compliance challenges of these businesses requires expertise beyond what most customers can assess on their own.

This is where consulting with a payment and banking expert becomes invaluable. At PSP Angels, we specialize in assessing the stability and risk of payment providers, ensuring our clients make informed decisions. Our strategic framework, The Soltesz Payment Framework, helps businesses and individuals identify providers that align with their specific needs while mitigating the risks associated with working with new fintech entrants.

Fintech May Be Modern, but Stability Is Timeless

It’s easy to be attracted to the innovative features and competitive pricing of fintech providers. However, these benefits can quickly evaporate if the company is not financially stable or if its operational model involves high-risk practices. Before placing your trust—and your money—with any provider, it’s worth asking: Have they proven their stability, or are you betting on a long-shot success?

Why You Need an Expert

A payment and banking strategy is no longer optional—it’s essential. Ensuring you partner with the right providers can mean the difference between seamless financial operations and unnecessary risk. It does not cost a lot to make right choices, ensuring that you’re not just investing in innovation but also in stability and security, but it can cost a lot not to have it.

This is why having the right expertise to guide you is essential. The risks involved are significant, and the solutions require careful planning and technical understanding. Without proper guidance, businesses can unintentionally leave themselves exposed to threats that could have been avoided. Ensuring the security of your operations and the trust of your customers is vital – and professional support can make all the difference.

PSP Angels (pspangels.com)

PSP Angels is our independent payment and banking consultancy.

Payment and banking today impact customer experience, risk management, technology, product development, data security, compliance, finance, and more. We argue that it should be considered a standalone function—an essential element of the business strategy, not just a part of finance.

We build strategies and scalable systems. Our unique framework successfully helped over 1000 companies globally, by supporting their overall business processes through a holistic approach to payment and banking setup.

Our unique approach

We are advisors, not resellers.

Unlike many consultancies, we are not tied to commission agreements with any specific partners. This allows us to provide objective and impartial advice on the options, fees, and risks associated with various payment and banking channels.

We focus solely on what’s best for the organization, not our own interests.