Diversifying revenue streams is one of the most effective ways for banks, fintechs and other financial services providers to ensure business resiliency, customer engagement and long-term growth.

And with the current proliferation of digital channels, capabilities and service models, today’s providers have more opportunity than ever to assemble a product mix that appeals to a wide range of audiences, thereby keeping existing customers loyal and engaged–and helping win new ones.

But with rapidly transforming market dynamics, increasing competition and rising operating costs, it’s crucial for providers to approach diversification strategically.

This means identifying the service opportunities with the highest potential to drive robust, durable revenue streams and thoughtfully assembling them into a highly synergistic array of offerings. Providers seeking to reap the powerful business benefits of financial services revenue diversification should keep the following principles in mind:

1. Diversify revenue streams by embracing in-demand financial products

The digital transformation of financial services and commerce has given rise to a new crop of capabilities that have caught on quickly with consumers and are widely considered to be major growth opportunities for providers.

The global market for buy now, pay later, for instance, is projected to surge at a 30.5% CAGR between 2023 and 2031, reaching $3.9 trillion in 2031, according to a July 2022 survey from Straits Research. Meanwhile, the nascent instant payments market also has high potential as a revenue driver, particularly in the context of business payments. Digital wallets are booming, too, with more than half of consumers in a 2023 Forbes study reporting using a digital wallet more often than traditional patent methods. And artificial intelligence offers the capability to significantly improve customer experiences in ways that support retention and engagement and drive new diversified revenue streams.

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2. Diversify revenue streams by leveraging emerging channels

The rise of embedded finance has opened a bevy of new pathways through which banks and other financial services providers can reach and serve new customers. Driven by the continued proliferation of e-commerce and other digital environments into consumers’ everyday lives, the global embedded finance market is anticipated to generate an estimated revenue of $1 trillion by 2032, with a CAGR of 32.4% from 2024 to 2032, according to a March 2024 study by Polaris Market Research.

Meanwhile, for financial institutions in particular, Banking as a Service (BaaS) offers another major pathway to new and profitable revenue streams–by selling API-based access to core banking products and services to non-bank partners, either on a recurring or per-service basis. Other sources of revenue under BaaS could include set-up charges or revenue-sharing agreements.

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3. Diversify revenue streams by tapping high-growth segments and markets

Along with leveraging high-demand products and delivery channels, providers also can diversify revenue by addressing new audiences and geographic markets–with underserved and emerging segments presenting particularly ripe opportunities for early movers that can establish a foothold.

Small and midsize businesses are a prime example of a high-potential market opportunity. Traditionally underserved by mainstream financial institutions despite comprising 99 percent of all U.S. companies, SMBs represent an estimated $150 billion in potential financial services revenue, McKinsey estimated in December 2023.

Learn more about how SMBs are utilizing embedded finance to reduce pain points.

Meanwhile, emerging geographic markets such as Latin America are serving as a hotbed of financial services innovation, with young, digital-savvy populations and robust governmental support for growth in the sector.

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