There are many smartphone apps designed to help make our financial lives easier. It’s now possible to manage nearly all aspects of our money — from budgeting, to investing, to sending money and making payments — through an app. And since many of these apps are free to use, it prompts the question as to how the operators make any money.
The business model for apps varies, but there are a variety of revenue streams ranging from advertising and referrals to subscription premium services. Let’s take a quick look at a half dozen of the most common financial app categories and their business models.
1. Money transfer apps
Do you need to pay someone, but don’t have cash and don’t want to bother with a check or money order? You can use money transfer apps to make payments and transfer cash instantly. In most cases, the app links to a bank account or credit card.
Some of the more popular money transfer apps include PayPal, Venmo, Cash App, and Dwolla, though there are many others. They are usually free to use, and they make money by charging a percentage of every transaction involving a credit card. Some apps, such as Venmo, also have a social feed component that could eventually lead to advertising revenue. (See also: The 5 Millennial Money Apps Everyone Should Use)
2. Account aggregators
These apps, which often also have desktop versions, allow users to link all of their financial accounts in order to see their full monetary situation in one view. This allows for easier tracking of spending and income, and there are some handy budgeting tools. Mint and Personal Capital are two of the more popular account aggregators.
Mint makes its money from a number of different sources, including advertising, product referrals (including credit cards), and from selling users’ aggregated financial data. Personal Capital, meanwhile, gets its revenue from the management fees tied to its separate robo-advising service. It collects 0.89 percent of the size of each portfolio under $1,000,000, and less as accounts grow larger. (See also: These 5 Apps Will Help You Finally Organize Your Money)
3. Investment apps
There are a number of new apps designed to make it easier for people to invest, including some that allow users to invest with small quantities of money. Acorns, for example, will round the cost of your purchases up to the nearest dollar and invest the difference. Acorns and its competitor Stash charge $1 per month until you have $5,000 in a portfolio (and in Stash’s case, $2 a month for IRA balances under $5,000). After that, both services charge 0.25 percent of your account balance. (See also: How to Start Investing With Just $100)
4. Credit score checkers
There are a number of apps that allow users to learn their credit score and get alerts for any unusual activity on their credit report. Credit Karma, Credit Sesame, and WalletHub are popular apps that are free to use, but make money from targeted advertising, loan management, and referral partnerships with credit card providers. (See also: I Checked My Credit Score in 11 Places — Here’s What I Learned)
5. Billing, invoicing, and time tracking
This group includes apps such as Harvest, which allows for time-sheet tracking, billing, online invoicing, and other services. Harvest is free for one person and two projects, but $12 per month, per person for unlimited projects. Similar apps have similar charges, but also make money if you use their payment processing features or pay for other upgrades. (See also: 5 Free Accounting Tools for Freelancers)
6. Bill paying
These apps can be similar to account aggregators, but allow users to make payments. Doxo is one app that allows for bill paying and offers a “digital filing cabinet.” Bill paying is often free, but users may be charged a fee if the provider is not part of the app’s network, or you pay using a credit card. (In the case of Doxo, this could be as much as 3.5 percent.)