Our Financial Services Vision

The financial services sector has long been dominated by incumbents with underwhelming products and outmoded technology. A new generation of FinTech players is now stealing the scene by re-inventing financial services through digital business models and by putting consumers first.

The FinTech Challenge

Poor consumer experience and legacy models

While technology has enabled remarkable improvement in product and customer experience in many sectors for some time, financial services has been slower to change due to strict regulatory frameworks and “sticky” relationships of customers with their financial providers. Incumbent financial institutions are only now beginning to face the same disruption as new digital business models emerge and challenge them, but improvement in customer experience is in many aspects still embryonic. 

Incumbents still dominate the market, but their products are expensive, pricing is opaque and user experience is poor, while legacy technology and systems compound the challenge they face in upgrading their offering. In parallel, as customers experience a new wave of digital products in retail, mobility and media to mention a few, they begin to expect the same level of convenience and experience in all aspects of their lives, including financial. 

In addition, traditional financial institutions’ bloated cost structures prevent them from offering their products to customers that are difficult to reach and serving them in a cost-effective manner. This has led to vast market segments being unserved or underserved, or in some cases provided with expensive or suboptimal products. For some households or small enterprises this equates to thousands of dollars every year.

Finally, while incumbents sit on an unparalleled wealth of customer data, they are surprisingly poor at using it. Data is often unstructured, inaccessible or unanalysable. Relevant data is often not shared within organisations, and even less so amongst them, leading to inferior product experience, inaccurate advice or poor credit decisions. 

All the above factors, combined with the negative narrative from the global financial crisis, result in a widespread lack of consumer trust in financial institutions, a sector where it is arguably most valuable. Even more importantly, banks’ corporate culture is often perceived as self-serving, with customers’ interests ranking behind large profits and lucrative executive remuneration. A new generation of FinTech players are stealing the scene by re-inventing financial services through a customer-centric mindset, a superior product experience and a focus on underserved customers.

The FinTech Opportunity

Technology and regulatory changes is enabling new innovative models

Financial services are ubiquitous over the course of our lifetime. Everything from buying the morning coffee, getting a mortgage and saving for retirement involves financial products and financial decisions. The financial services industry is a multi-trillion-dollar market globally, with a largely outdated product offering. In Sweden, 83% of customers are willing to purchase digital banking products, but currently only 32% of customers purchase products digitally. The trend is similar across the rest of Europe and beyond. This creates a tremendous opportunity for disruptive, digital-first businesses to thrive.

Technology is at the core of reinventing financial services through the next generation of disruptive business models. New tech stacks allow vast amounts of data to be structured and analysed to offer more targeted products and better pricing. Digital channels allow a new breed of financial services firms to access and serve customers who were previously unserved or expensive to reach. The prevalence of mobile increases convenience and enables a better user experience.

Open banking initiatives, enabling customers to securely share their financial data between financial institutions, coupled with regulatory changes across the globe is democratising data and further enabling FinTech players to access customers that were previously inaccessible. We are witnessing the beginning of the digitalisation journey in financial services and believe we will see significant change as innovative financial technology firms shake up the industry.

Financial offerings are being unbundled and rebuilt as single products through the use of technology to create a modern experience. Consumers are increasingly willing to engage with multiple providers of financial services to optimise convenience and cost. Large companies have already been built on single product lines in sufficiently large markets, and multi-market solutions are following. At the same time, we also observe how FinTech companies are not only digitising single product lines but also re-bundling them into new combinations with business model that don’t fit into the classic financial services’ definitions, but rather resemble technology platforms. 

Financial Services is an enabler for other sectors

The use of technology in financial services used to be largely dedicated to back-office processes like money transfers or execution of transactions. Digitisation is now fundamentally changing every part of the industry and the many other sectors that depend on it as an enabler. E-Commerce, as an example, is built on the premise of digital payments, which are also proving necessary to deliver cost efficient healthcare. The financial technology sector is at the early stages of disruption with significant runway to change and improve people’s lives.

Our FinTech Ecosystem

Kinnevik as a FinTech investor

Kinnevik partners with innovative FinTech companies that use ground-breaking technology to make better products available to more customers. Our FinTech portfolio today consists of seven companies across different markets and sectors. Betterment, Monese and Deposit Solutions are helping millions of customers to manage their banking, wealth management and savings needs in new ways. Bread and Pleo enable businesses to provide innovative financial services to their customers and employees. In emerging markets, BIMA and Bayport are redefining insurance and consumer lending, making it accessible to previously underserved groups. 

Our companies have developed deep knowledge in both financial services and technology to become thought leaders and lead innovators in their respective sectors. While they are early in their journeys, they have already had material impact on the lives of many of their customers. For example, Monese with close to two million registered users provides convenient and transparent banking products to many customers that previously struggled to access solutions that suited their life situation. Betterment, the world’s largest independent digital wealth manager with close to USD 20 billion of assets under management, ensures that high quality fiduciary financial advice previously only available for a wealthy few becomes accessible and affordable. 

With the rapid development in areas such as open banking, blockchain and big data, our companies are continuously enhancing their capabilities and resulting customer experience, providing attractive alternatives to the outdated offerings of incumbents.