In the last decade, and especially during the Covid-19 pandemic, we assisted to the boom of FinTech and InsurTech startups. In October 2020, about 10% of the market capitalization of the top 500 banks, payment and fintech firms belonged to FinTechs. Digital platforms are reshaping peoples' interaction with BFsI services (Banking, Financial services and Insurance).
Here are four companies that promise to change the future landscape of BFsI:
Net worth: $5.5 billion
Year of foundation: 2005
Klarna is an e-commerce payment platform with the mission of making online shopping experiences as smooth as possible for everyone. It offers flexible paying options, allowing customers to receive an order, try it on, and only pay latter; Or return it, without extra costs. On bigger purchases, the value can be sliced and payed between 3 to 36 months, depending on the retailer. Interest rates are also defined by retailers, but never go above 20%. To use it, customers only need to install the app, fill in their details, and look for online shops where they can pay via Klarna. At the moment, they have 250 000 retailers registered in their platform, and 2 million transactions are processed every day.
Net worth: $2.1 billion
Year of foundation: 2015
Lemonade is a world leading InsurTech company that offers contents and personal liability insurance. Its success comes from offering fast, transparent and affordable digital insurance services. This is enabled by the use of ML algorithms and behavioural statistics. Two chatbots and a virtual assistant to handle claims in 3 seconds, process payments, collect information, provide quotes and answer customer questions. It is estimated that these chatbots handle autonomously 1/3 of all claims, and the remaining 2/3 are easier to analyse by the employees because the chatbots have already collected and organised most of the needed information. Lemonade analyses Big Data, generated from over a million customers, to continuously improve risk calculation, and consequentially, prevent fraud.
It is also a B-Corp certified business, a certified attributed to companies when social impact is part of their business model. Lemonade pledges to give back part of their profits to charities through the programme “Giveback”, keeping only what is needed to successfully run the business and cover insurance costs.
Net worth: $4.8 billion
Year of foundation: 2011
SoFi, short for Social Finance, is an online platform that offers personal finance services in three areas: Lending, Investment and Banking. The company was funded by a group of graduates from Stanford Business School, who aimed to create a better way to provide loans to students. For that, they created a network of alumni lenders that would provide students with credit for their studies at lower rates than the commercial market. Nowadays, it offers other forms of personal credit, wealth management services, an investment platform, savings and checking accounts, insurance, credit for small businesses, and is applying to become a national banking charter in the US.
But what is the source of SoFi’s success? Customers are attracted by blend of low rates, enabled by having a completely digital business model, the ability to invest in shares and fractional shares of stocks and other investment assets without the need for an account minimum or to pay commissions (apart from investments in cryptocurrency), and a streamlined, easy-to-use app that connects all these services. SoFi uses approachable language and to allow their members to understand finance, the processes involved, and that way take control of the way they use their money.
Year of foundation: 2018
SoLo, short for Social Loans, is an online platform that allows users to access short-term funds from other members of the community for immediate needs. The company desires to respond to those who need small, short-term loans to make ends meet, and that don’t find in the market a solution that fits their needs. SoLo has created a platform where members can lend and borrow money without the need to provide any type of credit history or go through approval processes. The user simply defines how much needs to borrow, how long it will take to pay it back, and how much the lender will receive for the help. Lenders can choose what projects they want to help finance and filter them through risk, payback date, or tip value. Whenever someone borrows, that is registered in their profile, and that way lenders can see borrowers history and take informed decisions. Once someone decides to finance another member, the transfer happens in a matter of hours. All fees are viewed from the begging and there are no surprise extra costs, enabling borrowers to stay out of debt traps.
What do these four companies have in common?
What does this mean to the future of BFsI?
The rise of technology-driven startups in the baking, financial services and insurance sectors will continue in the coming years. This means that existing corporations should invest in adapting to the world's new digital and technological reality, and research what they can do to stay relevant in the future. These are the main questions corporate owners and C-level executives should be asking themselves:
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