Variable expenses and contribution profit across fintech business models - Bessemer Fintech

No two fintech companies measure gross profit the same way. For a more reliable measure of profitability, we suggest entrepreneurs understand the true variable costs to their business—and build towards contribution profit instead. Here's our breakdown of the business models and margin structures across seven different Fintech categories, explaining how entrepreneurs might think about contribution profit in each one.

1. Payments
Transaction fees
Installment fees
FX transaction fees
Interchange fees
Scheme fees
Bank settlement fees
FX fees
NET REVENUE / GROSS PROFIT
GROSS
REVENUE
•Gross merchandise value / total payments volume
•Gross take rate
•FX rates
•Regional interchange regulation
Program management and
variable compliance headcount
CONTRIBUTION MARGIN
LEVERS
REPRESENTATIVE PUBLIC COMPS
Direct S&M costs
CONTRIBUTION MARGIN AFTER S&M
For consumer
companies

2. Insurance
Gross earned
premium
Ceding costs
(reinsurance, fronting
carrier)
REVENUE / NET EARNED PREMIUM
GROSS
REVENUE
•Premium retention
•Renewal rate
•Premium per policy (varies by insurance line)
•Risk participation rate (%)
•Carrier or using a fronting carrier
•Commission rate varies by line (i.e., ~120-130% for
permanent life, and 10-15% for commercial trucking)
Gross placed
premium
Claims
Loss adjusted
expenses
Agent commission
GROSS PROFIT
Commission Rate
Support costs
Sales costs
Underwriting expenses
LEVERS
Direct S&M costs
CONTRIBUTION MARGIN AFTER S&M
For consumer
companies
CONTRIBUTION MARGIN
REPRESENTATIVE PUBLIC COMPS

3. ** applicable when loans are sold to third parties or securitizations (gain/loss is the difference between proceeds
received and the carrying value of the loan, including a net servicing asset liability in connection with ongoing
obligation to continue to service the loans and a recourse liability)
Credit
Interest income
(on loans / deposits / credit balances)
Funding costs
A – B : NET INTEREST INCOME
•Fed funds rate
•Gross merchandise volume (GMV)
•Deposit growth (held for investment [AV] of for sale [FV])
•Engagement (DAU/MAU, product usage, volume, etc.)
•Credit yield
•Loan-to-deposit ratio
•Loan coverage ratio
•Net interest margin % (NIM)
Interchange (credit / debit)
Late fees
Gain on sale of loans**
Servicing fees**
Point redemption
Credit / debit network fees
Servicing / origination / processing fees
Collection fees
Provision for credit losses
Operational losses (i.e., chargebacks)
Loss from discount on loans**
GROSS PROFIT
Third-party fraud expenses
Transaction-related headcount
Customer support
•Non-performing loan (NPL) rate
•Delinquency rate
•Customer distribution by FICO
•Cost-of-risk
CONTRIBUTION PROFIT
•Fed funds rate
LEVERS
A
B
REPRESENTATIVE PUBLIC COMPS
Direct S&M costs
CONTRIBUTION MARGIN AFTER S&M
For consumer
companies

4. Brokerage
Payment for order flow (options, equities)
Transactional rebates (crypto)
Other transactional revenue (mutual funds, alts)
Interest share %
A– B: NET INTEREST REVENUE
•Assets under custody (AUC)
•Payment for order flow (PFOF) take-rate, driven by bid-ask spread
•Deposit growth
•Asset distribution and associated yield
•Fed funds rate
•Trading volume
•Daily average revenue trade (DART)
Brokerage / transaction / execution / clearing costs
(clearing house fees, regulatory fees, market data)
Provision for credit losses**
GROSS PROFIT
Brokerage and clearing headcount
Account opening and verification headcount / expense
Support headcount and vendor expense
Gross interest revenue (fully paid lending, cash sweeps,
margin trading, deposits)
** applicable if funds are made available for trading immediately, before funds deposited
•Return on interest-earning assets
•Fed funds rate
•Net interest margin (NIM)
CONTRIBUTION PROFIT
A
B
LEVERS
REPRESENTATIVE PUBLIC COMPS
Direct S&M costs
CONTRIBUTION MARGIN AFTER S&M
For consumer
companies

5. Data and Infrastructure
Subscription fees
Data usage / call fees
Professional services
Data acquisition / disposition /
maintenance costs
Royalty fees
Database maintenance headcount and expenses
GROSS PROFIT
REVENUE
Implementation and professional
services headcount
CONTRIBUTION MARGIN
REPRESENTATIVE COMPS

6. Lead Generation / Marketplaces
Revenue per action / click / lead /
funded loan arrangement
Revenue share agreements
Data costs
Ad servicing costs
GROSS PROFIT
Support
CONTRIBUTION MARGIN
Direct S&M costs
REVENUE
CONTRIBUTION MARGIN AFTER S&M
REPRESENTATIVE PUBLIC COMPS

7. Financial Software
Subscription revenue
Professional services
Hosting and data infrastructure and
associated personnel
Subscriber support and PS personnel or
subcontractor fees
GROSS PROFIT
Support
CONTRIBUTION MARGIN
REVENUE
REPRESENTATIVE PUBLIC COMPS

8. Networks, market makers, exchanges, remittance,
payroll, banking cores, trading platforms
EXCLUDES:
NETWORKS BANKING CORES EXCHANGES
TRADING PLATFORMS PAYROLL MARKET MAKERS