The financial technology sector faced significant challenges in 2022 as interest rate hikes from central banks worldwide led to a decline in company valuations. However, as time progressed, fintech firms began to benefit from this evolving interest rate landscape, which enhanced their profit margins.
This increase in profitability is primarily attributed to the rise in net interest income—defined as the gap between the rates on loans issued and the interest paid to depositors. As a consequence, several fintech companies, including Robinhood, Revolut, and Monzo, reported improved financial outcomes in 2024. Specifically, Robinhood announced a remarkable annual profit of $1.4 billion, bolstered by a 19% year-over-year increase in net interest income, reaching $1.1 billion.
Revolut documented a substantial 58% growth in net interest income last year, leading to profits of £1.1 billion ($1.45 billion). Similarly, Monzo recorded its first annual profit for the year ending March 31, 2024, owing to an impressive 167% rise in net interest income.
Amid this backdrop of financial improvement, fintechs, particularly digital banks, now face a critical challenge: a decline in interest rates raises questions about the long-term viability of their business models that heavily rely on elevated net interest income.
Lindsey Naylor, partner and head of U.K. financial services at Bain & Company, emphasized this concern in an email to Finance Newso, stating, “An environment of falling interest rates may pose challenges for some fintech players with business models anchored to net interest income.” He indicated that reducing benchmark rates could serve as a test for the resilience of these companies’ operations.
“Lower rates may expose vulnerabilities in some fintechs — but they may also highlight the adaptability and durability of others with broader income strategies,” Naylor added. The overall impact of diminishing interest rates on the sector remains uncertain; however, Robinhood reported $290 million in net interest revenues in the first quarter of 2025, reflecting a 14% year-over-year increase.
Conversely, data from ClearBank, a U.K.-based payments infrastructure startup, illustrates the adverse effects of lower rates. The company experienced a shift to a pre-tax loss of £4.4 million last year due in part to a transition from reliance on interest income to fee-based revenue, alongside costs associated with expanding into the European Union.
Mark Fairless, CEO of ClearBank, shared insights on the company’s strategic focus: “Our interest income will always be an important part of our income, but our strategic focus is on growing the fee income line,” he explained in a recent interview with Finance Newso. He added that the company is planning with the acknowledgment of declining rates.
Exploring Income Diversification
In light of the challenges posed by falling interest rates, some fintech firms are proactively seeking to diversify their revenue streams to decrease dependence on card fees and interest income. For instance, Revolut has expanded its services to include cryptocurrency and stock trading, alongside its payment and foreign exchange offerings. Additionally, it has announced plans to introduce mobile plans through its app in the U.K. and Germany.
Naylor pointed out that companies with a diversified range of revenue sources are likely to be better equipped to withstand economic fluctuations and a lower interest rate environment. Dutch neobank Bunq, which primarily caters to “digital nomads,” reported a robust 65% increase in annual profit in 2024, demonstrating its strong performance regardless of interest rate changes.
“We’ve always had a healthy, diverse income,” commented Bunq’s CEO, Ali Niknam, in a recent Finance Newso interview. He noted that the unique circumstances in continental Europe, where negative interest rates have been prevalent, necessitated a different business approach.
Barun Singh, a fintech research analyst at U.K. investment bank Peel Hunt, echoed this sentiment, stating, “Neobanks with a well-developed and diversified top line are structurally better positioned to manage the transition to a lower-rate environment.” He cautioned that firms heavily reliant on interest from customer deposits, without adequate alternative revenue channels, may face significant challenges ahead.
