Indian fintech startups have witnessed explosive growth over the past decade, fueled in large part by aggressive customer acquisition tactics like deep discounts, referral rewards, and cashbacks. However, cracks have started to show. Unsustainable customer acquisition costs and low user loyalty are pushing fintech companies to shift from burning cash to sustainable revenue models. This article explores how Indian fintech startups can generate steady revenue while staying within legal and regulatory guardrails. 

This growth-at-any-cost strategy did succeed in rapidly expanding the digital payments user base – Paytm, PhonePe, CRED, and others rode the wave as Indian consumers flocked to apps promising the best deals. However, cracks have started to show in this discount-driven model. 

Customer acquisition costs have become unsustainable, and users often display little loyalty – hopping between apps in search of the next reward. As funding conditions tighten and regulators express concerns, India’s fintech sector is now shifting focus from burning cash to building sustainable revenue models. 

This article explores how Indian fintech startups can generate steady revenue beyond discounts and cashbacks, while staying within legal and regulatory guardrails.

The Era of Cashbacks and Its Pitfalls

In the mid-2010s, discounts and cashbacks were the engines of fintech user growth. Digital wallets and UPI apps enticed consumers with instant rebates on payments or lucrative sign-up bonuses. This era of easy rewards was enabled by venture capital funding that subsidized user acquisition. 

For example, PhonePe – backed by Walmart – spent an astonishing ₹950 crore on customer incentives in FY2019, but slashed that to only ₹15 crore by FY2024. Such drastic cuts reflect a broader industry trend: payment firms have dramatically reduced cashbacks and marketing spend in recent years. As the market matured and funding became scarce, companies like PhonePe, Paytm, Amazon Pay, and CRED pulled back on “cash burn” strategies, instead prioritizing cost control and profitability.

The pitfalls of the discount-driven playbook became evident.

First, high cash burn eroded the balance sheets of fintech firms, leading to mounting losses. The growth in user numbers did not translate to proportional revenue, since many customers came only for freebies and contributed little to the top line. 

Second, fleeting user loyalty meant that engagement dropped the moment cashbacks stopped. Fintechs realized they had essentially trained users to be deal-seekers rather than loyal customers. Third, regulators and industry watchers began warning against the unsustainable nature of continuous subsidies, India’s Competition Act 2002 prohibits predatory pricing (selling below cost to kill competition) by dominant firms. 

India’s Competition Act 2002 prohibits predatory pricing (selling below cost) by dominant firms. The Competition Commission of India (CCI), in cases like MCX Stock Exchange v. NSE (2011), held sustained zero-fee policies as destructive pricing. Conversely, in cases like Reliance Jio, promotional pricing was accepted temporarily due to low market share. These examples underscore that sustained freebies face both economic and regulatory limitations.. 

Why the Discount Model Fails to Sustain

Aside from regulatory limits, there are inherent business flaws in relying on discounts and cashbacks. Customer acquisition costs (CAC) skyrocket when each new user is essentially paid to join or transact. This might be justified in early stages but becomes untenable at scale – a lesson learned by many Indian fintechs after spending billions of rupees on incentives. Furthermore, margins are squeezed because revenue per user remains low in a free-services paradigm. Payment services like UPI have zero charges by policy, meaning providers earn nothing on each transaction. When combined with cashback outgo, every transaction can be a net loss.

User stickiness is minimal when rewards are the only hook; a rival’s slightly better offer can peel away hard-won customers overnight. As one industry executive noted, the 2017-2019 period was about aggressively “creating the payments market” by grabbing users, but by 2024 there is “greater maturity” and cashbacks are now given more judiciously rather than via “mindless spending”. Fintech startups increasingly recognize that a user acquired for ₹50 will leave for ₹51 – a race to the bottom that builds no enduring value.

Another critical reason the discount-led model fails is the lack of profit generation. Investors and public markets have grown impatient with companies that show growth without a path to profitability. Since 2022, as funding tightened, fintechs have been under pressure to monetize their user base instead of merely expanding it. 

This has led to a strategic inflection point: focus on unit economics and sustainable revenue rather than vanity metrics. The shift is visible in recent moves by major players. In Q4 FY25, many Indian fintechs decisively pivoted from breakneck growth to prioritizing profitability and sustainability, amid what analysts call a “margin-first” mindset. Rising regulatory pressure has reinforced this change in mindset. 

For instance, MobiKwik (a digital wallet and BNPL provider) is scaling back its “Buy Now Pay Later” offerings and doubling down on its core payments business via its ZaakPay gateway, aiming to earn higher fees (take rates) from merchants. Paytm has slowed down unsecured personal loans and is betting on merchant credit (extending credit to small businesses) backed by first-loss default guarantees, which can generate interest income. Paisabazaar (part of PolicyBazaar) is shifting focus to secured loans like home loans and loans against property, which carry lower default risk and steadier commission income. These examples illustrate a broader industry trend: move from volume to value. Instead of maximizing transaction count with freebies, fintechs are now seeking revenue streams that can persist and grow without continuous subsidy.

Sustainable Revenue Streams Beyond Cashback

In the new paradigm, Indian fintech startups are exploring and doubling down on various sustainable revenue models beyond consumer discounts. Key avenues include:

• Digital Lending and Credit Products: Credit is emerging as a cornerstone of fintech revenue. Unlike payments (which in India often has zero or minimal fees), lending allows fintechs to earn interest spreads, origination fees, or commissions. Many fintech apps have transitioned to lending by partnering with banks or obtaining NBFC licenses. However, they must strictly adhere to RBI guidelines mandating transparency and consumer protection, particularly around disclosure of effective interest rates. 

For example, CRED, initially known for credit card bill rewards, built one of the largest personal lending portfolios among fintechs by facilitating loans through partner institutions. Its revenue surged 66% year-on-year to ₹2,473 crore in FY2024, largely from credit products, even as it continued offering rewards for engagement. Fintech lenders leverage their rich user data for credit underwriting, giving them an edge in offering small-ticket loans, payday advances, and installment financing. 

However, they must navigate RBI’s digital lending guidelines which mandate transparency and consumer protection (for instance, disclosing effective interest rates and avoiding predatory practices). The RBI has also cracked down on certain quasi-lending models: in June 2022, it banned the loading of prepaid payment instruments (PPIs, like wallets or prepaid cards) through credit lines, a common BNPL mechanism. 

Regulators viewed many BNPL offerings as “shadow credit cards” operating outside the regulated credit card framework. Fintechs like Slice, which relied on prepaid cards with credit lines, had to revamp their models after this RBI circular. The lesson is that lending can be a sustainable revenue stream if done within the bounds of regulation – complying with lending licenses, fair practices, and prudential norms. 

• Financial Product Distribution (Commission-Based Models): Another sustainable revenue source is acting as a distributor or broker for financial products like insurance, mutual funds, investment products, and credit cards. Fintech platforms with large user bases earn commissions by cross-selling financial products like insurance, mutual funds, and credit cards. Compliance with IRDAI and SEBI regulations is critical to avoid penalties for mis-selling. 

For instance, payments apps have started offering mini-app marketplaces where users can buy insurance policies, invest in mutual funds or digital gold, or book financial services. PhonePe and Paytm both have subsidiaries for wealth management (e.g., PhonePe Wealth, Paytm Money) and insurance broking. These services generate revenue through upfront commissions (for insurance, up to the limit allowed by IRDAI regulations) or trail fees (for mutual funds, if not offering direct plans). While initially some platforms offered these at zero commission to attract users (e.g., Groww’s zero-commission direct mutual funds model ), monetization can come from add-on services or volume-based arrangements with product providers. This aligns with the broader ecosystem and is generally sustainable as long as products are sold responsibly (mis-selling could invoke regulatory penalties under consumer protection laws or SEBI/IRDAI guidelines). Successful fintech distributors focus on high-margin products and use personalization (often AI-driven) to pitch the right product to the right customer, thus improving conversion and commissions.

• Subscription and Premium Services: A number of fintech startups are introducing premium tiers or subscription models to generate steady revenue. Under this approach, basic services remain free to keep user adoption high, but power users can opt into paid plans that offer enhanced features, higher transaction limits, better customer support, or rewards. For example, neobanks and personal finance apps may have a premium subscription that gives access to wealth advisory, advanced analytics, or exclusive deals. 

Payment platforms have tried subscription loyalty programs (such as Paytm First or Amazon Pay’s membership perks) as a way to monetize a subset of users. Even credit card fintechs use membership fees – CRED, while free for users, partners with card issuers to create premium experiences that indirectly monetize the affluent user base (for instance, charging brands to access its user base for marketing). 

The subscription model, if it delivers clear value, can provide predictable recurring revenue. Fintechs do have to be careful that subscriptions comply with RBI’s e-mandate rules for recurring payments and that terms are fair (the Consumer Protection Act 2019 requires transparency in auto-renewals and refunds, for instance). Overall, moving from an entirely free model to a freemium model indicates maturation – users pay for convenience or superior service, not unlike how traditional banks charge for premium accounts.

• Merchant Services and B2B Offerings: Many Indian fintech startups are now focusing on revenue from merchants and enterprise clients, rather than solely end-consumers. Payments processors and aggregators earn fees from merchants for enabling digital payments – for example, a payment gateway typically charges a Merchant Discount Rate (MDR) or a fee per transaction (though UPI P2M transactions currently have zero MDR by government mandate). Fintechs are finding creative ways to earn from merchants, such as value-added services like billing software, analytics, loyalty programs, and storefront solutions. MobiKwik’s strategy to boost revenue by growing its payment gateway (ZaakPay) and increasing “take rates” (its cut from merchant transactions) is a case in point.
  
  Another example is Infibeam Avenues (CCAvenue), which provides payment processing tech; it’s focusing on merchant tech solutions with higher margins and expanding to international markets. These B2B revenues can be more sustainable because they are contract-based and less prone to the fickleness of consumer behavior. That said, when charging merchants, fintechs must keep an eye on competition law – if a fintech attains significant market power in a certain B2B segment, overly high fees or restrictive contracts could draw antitrust scrutiny. Conversely, charging too low (free) for merchants for a long period could rekindle predatory pricing concerns if the firm later becomes dominant in that niche. Thus, a balanced pricing strategy is key.
  
  
• Data Monetization and Partnerships: Another potential revenue stream is leveraging the rich data fintech companies gather (of course, with user consent and privacy compliance) to generate insights or targeted offers. Fintech apps know a user’s spending patterns, bills, investments, etc., which is valuable for tailoring financial offers. Some startups monetize this by partnering with third-party product providers (e.g. lending, insurance, e-commerce) and earning referral fees when users take up targeted offers. For instance, a fintech might show a user pre-approved loan offers from a bank within the app; if the user accepts, the fintech gets a referral commission. Advertising within apps (in a user-sensitive way) can also bring revenue – for example, featuring certain brands or offers for a fee. 

However, with India’s Data Protection regime (the Digital Personal Data Protection Act, 2023) and growing user awareness, fintechs must ensure data usage is transparent and permitted. Misuse of personal financial data could lead to regulatory sanctions or loss of customer trust. Done responsibly, though, insights from data can drive cross-selling and partnership revenues that are far more sustainable than broad cashbacks. Indeed, companies are realizing that long-term value lies in leveraging technology and data to offer financial services people actually need (credit, insurance, investments) and taking a small cut of that value – rather than bribing users to use an otherwise unprofitable service.

Regulatory and Legal Considerations

Crucial to making any revenue model sustainable is compliance with India’s financial regulations and laws. Fintech, being at the intersection of finance and technology, faces oversight from multiple regulators: the Reserve Bank of India (RBI) for payments and lending, the Securities and Exchange Board of India (SEBI) for wealth products, the Insurance Regulatory and Development Authority of India (IRDAI) for insurance, and the Competition Commission of India (CCI) for market competition issues, among others. Startups seeking sustainable revenues must design their models in line with these frameworks to avoid legal pitfalls that could derail their business.

RBI Regulations: The RBI has been actively shaping the fintech landscape through guidelines and licensing regimes. For payments, RBI’s policy (in consultation with government) of Zero MDR on UPI and RuPay debit cards has been a double-edged sword: it propelled mass adoption of digital payments by making them free for merchants, but it also eliminated a key revenue stream for payment providers. Industry bodies have voiced that the current government incentives to reimburse providers (₹1,500 crore for FY25) are “not a sustainable revenue model” and fall far short of covering costs for handling trillions of rupees in transactions. The Payments Council of India, chaired by Vishwas Patel, has warned that without either higher subsidies or a modest MDR on large merchants, the survival of many payment fintechs is at risk. Fintech startups in payments must therefore innovate around the zero-MDR constraint – for example, by focusing on ancillary services to merchants or by participating in government incentive schemes – until policy evolves to allow direct monetization. On the lending side, RBI’s Digital Lending Guidelines 2022 mandate that loans be disbursed directly to borrowers (and not through opaque pass-through accounts), limit passthrough of customer data, and require greater transparency on interest and fees. Complying with these means fintech lenders may have slightly higher friction or lower hidden margins, but it ensures trust and legality. 

Competition Law: As fintechs grow, they must also be mindful of competition law (antitrust) issues in their revenue strategies. The Competition Act, 2002 prohibits abuse of dominant position, including predatory pricing and unfair trade practices. A startup in its nascent stage has leeway to price aggressively (as seen in the Jio case) but if a fintech later dominates a segment (say, one app controls most UPI transactions or most digital lending in a category), it cannot continue loss-making incentives to box out others. The CCI has increased scrutiny on deep discounting across the digital economy. In e-commerce and food delivery, for example, there have been investigations and cases filed for alleged predatory pricing and preferential treatment. 

Fintech has not yet seen a major predatory pricing penalty, but the writing is on the wall: once a player achieves scale, its pricing and market practices must be fair. The NSE case mentioned earlier is instructive – the exchange had to stop its zero-fee policy and paid a hefty penalty. Fintechs should thus plan revenue models that do not rely on indefinite below-cost pricing. Additionally, any exclusive tie-ups or bundling (like requiring use of a particular payments app for a service) could attract CCI attention if they harm competition or consumer choice. 

Notably, in 2022 the CCI penalized Google for abusing its dominant Android platform to promote its own payments system; Google was found to have imposed restrictions on app developers’ ability to use alternate payment methods, which was deemed anti-competitive. The takeaway for fintech startups is to compete on innovation and service, not by circumventing competition through deep pockets or platform dominance. Sustainable revenue will come from creating genuine value that customers or partners willingly pay for, not from forcing rivals out and then charging monopoly prices – a strategy that is both legally and commercially fraught.

Consumer Protection and Data Laws: Fintech services often deal with individual consumers’ money and data, so laws like the Consumer Protection Act and data protection laws directly impact revenue strategies. For instance, if a fintech’s revenue model involves charging fees or upselling products, it must ensure full disclosure of charges (to avoid being labeled an unfair trade practice). Hidden charges or misleading “free trial” that auto-convert to paid subscriptions could invite action under consumer law.

The upcoming data protection regime will affect any revenue model based on personal data monetization – explicit user consent and purpose limitation will be key. Fintechs aiming to use customer data for cross-selling should invest in robust consent systems and cybersecurity, as any data breach or misuse not only undermines trust but could lead to hefty penalties, which would wipe out gains.

Conclusion

As Indian fintech startups transition from a frenetic growth phase to a steadier, sustainable future, their revenue models are undergoing a profound change. The age of acquiring users “at any cost” through discounts and cashback is waning; in its place arises a focus on fundamentals – providing valuable financial services and charging for them in fair, transparent ways. Sustainable revenue models for fintechs in India revolve around core financial business (like lending, investment, insurance), value-added services, and B2B solutions, rather than one-off gimmicks. This transition is not just a business imperative but also a response to regulatory realities and investor expectations. Fintechs are learning to make money while making a difference, be it through helping a small business get a loan, enabling a family to insure their future, or providing a smooth payments infrastructure to merchants. Each of those services has intrinsic revenue potential without the need to dangle perpetual freebies.

For law firms and legal advisors working with fintech companies, this evolution underscores the importance of compliance and strategic counsel. Crafting a sustainable revenue model must go hand in hand with navigating regulations – obtaining the right licenses, adhering to guidelines, structuring fees lawfully, and guarding against legal risks. Successful fintechs of tomorrow will likely be those who strike a balance between innovation and regulation: creative in monetization, yet conscientious in compliance. From a legal standpoint, ensuring that revenue streams are legitimate, contracts enforceable, and practices in line with competition and consumer laws will be critical in fortifying these business models against challenges.

In summary, Indian fintech startups can indeed move beyond the era of discounts and cashback by embracing revenue models that are service-driven, customer-centric, and legally sound. The journey to sustainability involves disciplined execution and often a course-correction from the growth-at-all-costs mindset. It means focusing on lifetime value of customers instead of just initial acquisition. It also means engaging constructively with regulators to shape policies that enable innovation with stability – such as advocating for reasonable MDR or new frameworks for digital finance. The fintech revolution in India is far from over; in fact, its next chapter – one of sustainable, compliant growth – is just beginning. By building robust revenue models now, Indian fintech startups can ensure they not only survive the funding winters but thrive in the long run, continuing to transform India’s financial landscape in a responsible way.

References

• Sanchari Sen, “The Great Cashback Con – Why Indian Fintechs Are Burning Billions on the Wrong Customers,” Medium (Feb 1, 2025)
  
  

• Pratik Bhakta, “Payments firms slash cashbacks, incentives on funding drought,” The Economic Times (Oct 31, 2024)
  
  

• YourStory Media (LinkedIn post by Sayan Sen), “Swipe. Pause. Monetise: Indian fintechs signal the end of volume-first strategy in Q4 FY25,” (June 2025)
  
  

• Puja Sharma, “India’s digital payments face sustainability test as zero MDR bites,” IBS Intelligence (Mar 27, 2025)
  
  

• Shilpa Mankar Ahluwalia, “RBI takes credit for curbing PPI financing,” Shardul Amarchand Mangaldas Insight (July 28, 2022) .
  
  

• Aditya Bhattacharjea, “Predatory Pricing in India,” Antitrust Chronicle (Jan 2019) – Discussion of MCX Stock Exchange v. NSE (2011) and Bharti Airtel v. Reliance Jio (CCI order 2017) .
  
  

• Aditya Kalra, “Fast-delivery companies Zomato, Swiggy, Zepto face India antitrust case over discounts,” Reuters (Mar 6, 2025).
  
  
• NCLAT (Chamber’s report), “NCLAT Modifies CCI Order Against Google,” noting CCI’s ₹936 crore fine on Google for Play Store payments restriction (2022). (Illustrative of competition law in fintech ecosystem.)