The app icons for Revolut and Monzo displayed on a smartphone.
Betty Laura Zapata | Bloomberg via Getty Images
Financial technology firms were initially the biggest losers of interest rate hikes by global central banks in 2022, which led to tumbling valuations.
With time though, this change in the interest rate environment steadily boosted profits for fintechs. This is because higher rates boost what’s called net interest income — or the difference between the rates charged for loans and the interest paid out to savers.
In 2024, several fintechs — including Robinhood, Revolut and Monzo — saw a boost to their bottom lines as a result. Robinhood reported $1.4 billion in annual profit, boosted by a 19% jump in net interest income year-over-year, to $1.1 billion.
Revolut also saw a 58% jump in net interest income last year, which helped lift profits to £1.1 billion ($1.45 billion). Monzo, meanwhile, reported its first annual profit in the year ending March 31, 2024, buoyed by a 167% increase in net interest income.
Now, fintechs — and especially digital banks — face a key test as a broad decline in interest rates raises doubts about the sustainability of relying on this heightened income over the long term.
“An environment of falling interest rates may pose challenges for some fintech players with business models anchored to net interest income,” Lindsey Naylor, partner and head of U.K. financial services at Bain & Company, told CNBC via email.
Falling benchmark interest rates could be “a test of the resilience of fintech firms’ business models,” Naylor added.
“Lower rates may expose vulnerabilities in some fintechs — but they may also highlight the adaptability and durability of others with broader income strategies.”
It’s unclear how significant an impact falling interest rates will have on the sector overall. In the first quarter of 2025, Robinhood reported $290 million of net interest revenues, up 14% year-over-year.
However, in the U.K., results from payments infrastructure startup ClearBank hinted at the impact of lower rates. ClearBank swung to a pre-tax loss of £4.4 million last year on the back of a shift from interest income toward fee-based income, as well as expenditure related to its expansion in the European Union.
“Our interest income will always be an important part of our income, but our strategic focus is on growing the fee income line,” Mark Fairless, CEO of ClearBank, told CNBC in an interview last month. “We factor in the declining rates in our planning and so we’re expecting those rates to come down.”
Income diversification
It comes as some fintechs take steps to try to diversify their revenue streams and reduce their reliance on income from card fees and interest.
For example, Revolut offers crypto and share trading on top of its payment and foreign exchange services, and recently announced plans to add mobile plans to its app in the U.K. and Germany.
Naylor said that “those with a more diversified mix of revenue streams or strong monetization of their customer base through non-interest services” are “better positioned to weather changes in the economy, including a lower rates environment.”
Dutch neobank Bunq, which targets mainly “digital nomads” who prefer not to work from one location, isn’t fazed by the prospect of interest rates coming down. Bunq saw a 65% jump in annual profit in 2024.
“We’ve always had a healthy, diverse income,” Ali Niknam, Bunq’s CEO, told CNBC last month. Bunq makes money from subscriptions as well as card-based fees and interest.
He added that things are “different in continental Europe to the U.K.” given the region “had negative interest rates for long” — so, in effect, the firm had to pay for deposits.
“Neobanks with a well-developed and diversified top line are structurally better positioned to manage the transition to a lower-rate environment,” Barun Singh, fintech research analyst at U.K. investment bank Peel Hunt, told CNBC.
“Those that remain heavily reliant on interest earned from customer deposits — without sufficient traction in alternative revenue streams — will face a more meaningful reset in income expectations.”
