The four core models: payments, lending, neobanks, and embedded finance

# The four core models: payments, lending, neobanks, and embedded finance

You buy a $100 pair of sneakers online. Behind that single click, three different fintech businesses could be fighting to make money off you: the company that moves your payment, the one that lets you split it into four installments, and the app where your money actually lives.

Each earns in a completely different way. Each breaks in a completely different way. If you understand these four models, you understand roughly 90 percent of what the fintech industry does.

Let's dissect them one transaction at a time.

Model 1: Payments (the toll road)

Payments companies move money from a buyer to a seller and take a small cut. Think Stripe, Adyen, or PayPal.

The classic example is a card transaction. When you pay that $100, the merchant does not keep all of it. A slice gets carved up among several players in what the industry calls the interchange system (the fees set mostly by card networks like Visa and Mastercard).

Where the $100 goes

A rough, commonly cited breakdown for a US online card payment:

• The issuing bank (your card's bank) takes an interchange fee, often around 1.5 to 2.5 percent.
• The card network (Visa, Mastercard) takes a smaller network fee.
• The payment processor (Stripe) takes its own margin on top.

Stripe's headline US price is famously about 2.9 percent plus $0.30 per transaction. On your $100 order, that is roughly $3.20. But Stripe does not keep $3.20. Most of it passes through to the issuing bank and the network. Stripe's actual gross margingross marginGross margin is the share of revenue left after subtracting the direct cost of producing goods or services, expressed as a percentage of revenue.Voir la définition complète → is a thin sliver of that fee.

The unit economics

This is the key insight: payments is a volume game with tiny margins per transaction. Stripe might net well under 1 percent of the amount processed. That only works at massive scale.

The model breaks when:

• Volume is too low to cover fixed engineering and compliance costs.
• Chargebacks (when a customer disputes a charge and the money is clawed back) and fraud eat the thin margin.
• A big merchant negotiates rates down to almost nothing.

For a deeper mapmapUsing software to automate repetitive marketing tasks and campaigns, enabling personalisation at scale across channels like email, web, and social.Voir la définition complète → of who takes what, the Federal Reserve's payments research is a solid free reference.

Model 2: Lending (the risk business)

Lending companies give you money now and get paid back more later. The difference is their revenue. Klarna, Affirm, and most Buy Now Pay Later (BNPL) firms live here, alongside consumer and small business lenders.

Take a Klarna "pay in four" plan on your $100 sneakers. You pay $25 now and $25 every two weeks. The customer often pays zero interest.

So how does Klarna make money?

Two main ways:

1. Merchant fees. The store pays Klarna a cut (often estimated at 3 to 6 percent) because BNPL increases sales and average order size. This is Klarna's biggest revenue line for interest free plans.

2. Interest and late fees on longer term loans, where the customer pays over months, not weeks.

The unit economics

Here the enemy is credit risk, meaning the chance the borrower does not repay. That is called a default, and the loss on it is the credit loss.

Lending margins look fat compared to payments, but they are not free money. Out of that merchant fee and interest, the lender must subtract:

• Cost of the money it lends (its own funding cost, which rose sharply when interest rates climbed).
• Credit losses from people who never pay back.
• Collections and servicing costs.

The model breaks when credit losses spike. In a recession, more borrowers default at the same time, and a lender that priced its loans for good times can suddenly lose money on every cohort. This is why lending is fundamentally a risk-underwriting business: the whole skill is predicting who will repay.

Payments vs lending, side by side

• Stripe on your $100: earns cents, takes almost no risk, needs enormous volume.
• Klarna on your $100: earns dollars, takes real risk that you might not pay, needs good credit models.

Same sneakers. Totally different business.

Model 3: Neobanks (the relationship play)

A neobank is a bank with no branches, delivered entirely through an app. Nubank in Brazil, Revolut in Europe, Chime in the US. Some hold their own banking license; others partner with a licensed bank behind the scenes.

Here the product is not one transaction. It is you, as a long term customer, using many products.

How a neobank like Nubank earns

Revenue comes from a mix:

• Interchange on the debit and credit cards it issues (yes, the same interchange from Model 1, but now the neobank is the issuing bank taking that slice).
• Interest on credit cards and loans (Model 2 logic, inside the app).
• Net interest margin: the spread between what it pays on deposits and what it earns lending those deposits out.
• Subscription fees and premium tiers.

The unit economics

The magic number is CAC versus LTV:

• CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.Voir la définition complète → (Customer Acquisition CostCustomer Acquisition CostCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.Voir la définition complète →): what it costs to sign up one new user.
• LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.

Neobanks win when a cheaply acquired customer (often via referral, which is why Nubank grew so fast in Brazil) sticks around for years and gradually adopts more products. A user who only holds a free account and never borrows or pays a fee can actually be unprofitable.

The model breaks when:

• Customers are cheap to acquire but never deepen the relationship (low LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.Voir la définition complète →).
• The neobank subsidizes free accounts hoping to cross-sell later, and the cross-sell never comes.
• It scales users faster than it scales revenue per user, burning cash the whole way.

Nubank's story matters here because it showed a neobank can reachreachThe number of unique people exposed to your message in a given period. Unlike impressions, reach counts each person once, no matter how often they see it.Voir la définition complète → profitability at very large scale by relentlessly cross-selling credit, but many rivals in richer markets have struggled to convert users into profit.

Model 4: Embedded finance (the invisible layer)

Embedded finance means putting a financial product inside a non-financial company's app or checkout. The ride-hailing app that offers drivers a debit card. The e-commerce platform that lends its sellers working capitalworking capitalWorking capital is the difference between a company's current assets and current liabilities, measuring short-term liquidity and the funds available to run daily operations.Voir la définition complète →. The software tool that lets you invoice and get paid without ever visiting a bank.

The provider making this possible is often a Banking-as-a-Service (BaaS) firm: it holds the license, the compliance, and the plumbing, then rents it out through an APIAPIApplication Programming Interface: a standardised interface that lets applications communicate and exchange data without knowing each other's internal workings.Voir la définition complète → so any company can offer banking features.

The unit economics