Business Models and Unit Economics

Almost every financial company earns money in one of six ways: it lends at a spread (borrows cheaply, lends dearly and keeps the difference after losses), it charges a fee on assets, advice or services, it holds float (money that belongs to customers but sits with the firm for a while), it takes a cut of a transaction, it prices and pools risk (insurance), or it sells data and access. The six look alike on a pitch deck ("revenue per customer", "LTV/CAC") and behave nothing alike in a downturn. A spread lender's revenue is booked now and its costs, the credit losses, arrive later. A fee business's revenue rises and falls with markets it does not control. A float business earns most when interest rates are high and can see its float leave overnight. A take-rate business rides volume but is squeezed by its largest customers and by regulators who cap interchange. A financial business model is therefore an answer to four questions: what is the revenue unit, whose balance sheet carries the risk, how much capital does each dollar of revenue need, and what happens to all three when rates, markets or credit turn? This section maps the revenue units of finance, the mechanics and key ratios of each model (net interest margin, efficiency ratio, ROE and ROTCE, RAROC, take rate, AUM fee, compensation ratio, ARPU, cost to serve, CAC and LTV), margins and capital intensity by model, public benchmarks, landmark cases and pitfalls. A worked example compares four stylized businesses customer by customer, and a checklist sets out diligence questions by business type.