How Fintechs Can Apply Monetization Strategies and Monetize Innovations

July 06, 2021

header

Financial technology companies (fintechs) continue to revolutionize the sector, but far too many new products and ventures fail at launch. Experts Men-Andri Benz and Lukas Lauven explain how to effectively monetize innovations, create pricing strategies, and optimize communication in order to guarantee success.

Fintechs changed the face of the industry by applying specialized technology to create a financial system that is effective and efficient. However, maintaining this momentum requires attention to detail on all fronts. To secure and grow their business, fintechs have to attract funding, select the right investors, and adhere to evolving regulations. Above all, they need to offer products their clients highly value and buy accordingly. Only fintechs that have innovative, consistent product portfolios will be able to win new clients and capture the larger market shares needed for continuous growth.

Interestingly, as our research shows, an astounding 72 percent of new products fail, as do 75 percent of new ventures. The problem often stems from inadequate product packaging and poorly aligned monetization strategies. While many firms meticulously optimize their technical solutions, only few monetize their innovations effectively. In addition to not knowing how to charge for their creations, we find that most fintechs also fail to design product features that meet customer demands. Furthermore, they struggle to communicate how customers benefit from specialized features and what they have to gain, overall, from using their products.

Monetize innovations effectively using data-driven approaches

Product teams often focus intently on developing great solutions but pay little attention to aspects of pricing. As much as they rely on user feedback to establish market fit, they need to determine what customers are willing to pay for the product early on. This helps companies avoid pricing their offers too high or too low, which ultimately results in them leaving profit on the table.

Most fintechs enter the market with a minimum viable product, i.e., a version of a product that has just enough features to be usable by early customers who can then provide feedback for future product development. Once firms have established a client base, they can focus on observing customer behavior and reactions, which is crucial for developing new features. Successful fintechs use these insights to identify which features clients demand. Based on this information, companies can then estimate market acceptance and profit potential, and prioritize feature development.

Moreover, continuous data gathering helps firms to not only identify what their clients need, but also how these needs differ between customer groups. There is no product category in financial services for which one size fits all. Fintechs need to tailor their offers to customers’ individual requirements. Ideally, this is done through data-driven segmentation, which enables fintechs to clearly identify customer groups. Consequently, product development processes and pricing can be adjusted according to needs and preferences. After all, willingness to pay will vary between customer groups.

Align the monetization approach with the company strategy

But companies should not lose sight of the bigger picture when designing products and setting prices. The scope of their monetization models needs to go beyond how much the product costs. Attention must be given to how a product is offered and charged for as well as how often payments are made and whether promotions and discounts can be granted. All these points are highly strategic and need to be closely aligned with the firm’s overall strategy and commercial goals.

Newly founded fintechs pursuing an aggressive market penetration strategy are more likely to offer freemium services and provide significant rebates to quickly gain traction. More established companies with a set customer base tend to skim their established market and eliminate discounts and free-entry products in favor of more differentiated packaging and pricing approaches.

Regardless of the overall commercial strategy, successful fintechs continue to rely on market insights to refine their monetization models. Their packaging logic, price metric, charge structure, and price levels are all based on insights from continuous market testing. Knowing the value drivers, i.e., exactly which product characteristics clients’ value, is crucial. Fintechs with excellent product and pricing approaches use this information strategically. While their standard offering includes several features customers highly value, only the most premium products offer the complete package.

Use communication and behavioral effects

Creating new products and features alone does not guarantee market success. Educating potential users on their availability and benefits is essential for a powerful market launch. Successful firms involve marketing and sales specialists early on in the creation process to ensure effective communication of benefits later on. Fintechs need a compelling narrative to ensure user uptake and market success. Much like the actual product, such stories build upon findings of user research. To address potential customers effectively, companies need to know how they consume and process information.

If companies don't communicate how exactly their new or revised products meets their customers' needs, customers won't know how the product provides them value or which actions they need to take, e.g., sign up for, or upgrade to a more feature-packed product, to gain the most benefit. Again, this can only be done by studying customer characteristics and identifying different groups to create meaningful and targeted messages.

Key takeaways

Successful fintechs follow a clear pricing journey to monetize their innovations and capture profits. They make data-driven decisions during product development, thoughtfully design their packaging, align monetization strategies with the overall corporate strategy, and ensure product benefits are effectively communicated to customers. Above all, they understand the importance of pricing and address monetization questions at the start of the development process.