The Finstar Financial Group last week unveiled a $150 million fund that it will use to invest both in FinTech startups and its in-house research and development of financial technology. FStech asks the group’s chairman, Oleg Boyko, about specific plans for the fund and the private equity group’s wider FinTech strategy.
Can you tell us a little more about Finstar Financial Group and what the company does?
Finstar is an international private investment group operating in Europe, the US, Asia, Latin America and the CIS. Finstar has 20 years of operational experience but is currently focused on leveraging its expertise in the FinTech sector, where changes in consumer behaviour, advances in cloud-based technology, the growing power and availability of mobile devices, and the emergence of data science are challenging the business models of traditional financial institutions.
Do you have a specific focus on which type of FinTechs you will be investing in with the new $150 million fund?
Finstar is a globally focused investor and it will likely be targeting opportunities in Europe, Latin America, Southeast Asia and India. Finstar is stage-agnostic, but the core focus will be on early-stage deals from the seed stage through to Round B. Finstar will maintain its focus on transformational financial services platforms and businesses. We will look more broadly at our investment thesis and aside from the core focus on FinTech and InsureTech, we will also seek FinTech-enabling models within realms of AI, data science, AdTech and MarTech.
How many FinTech firms will you be looking to invest in in total?
It depends on the companies – how they are disrupting traditional financial products and services, what range of technologies they own and develop, and to what extent they are at the forefront of financial services innovation. However, we will try to keep the total portfolio relatively concentrated: we can add more value to our portfolio businesses than a typical financial investor. We would therefore like to concentrate on no more than 20 promising opportunities.
What support, other than financial, will you provide to the companies?
Finstar’s philosophy of partnership brings strategic value and insight to early-stage and growth investments, allowing its companies to succeed in complex developing markets. We nurture the businesses we invest in, providing them with expert advice of the highest calibre. We also offer them the freedom to continue innovating and to grow at their own pace. We have highly developed expertise at the HQ level, which allows us to serve as a centre of excellence, helping our portfolio companies navigate through the complex set of FinTech technologies and extract synergies from collaboration with our other portfolio businesses and market participants within our very strong network.
How does this latest move fit in with Finstar’s overall strategy for the next few years?
There are roughly 2.5 billion people in the world underserved by traditional financial products and services. Those people are often concentrated in developing economies and frontier markets. However, even in mature markets, there are first-time financial consumers – Millennials in particular – for whom the old ways of banking don’t stack up. What we have, therefore, is a brilliant opportunity to rethink financial services and to reframe financial services so they serve this community.
Finstar aims to create a system that enables us to render financial services to these underserved segments. Essentially, we are creating next-generation financial intermediaries using cutting-edge Big Data and artificial intelligence, as well as new technological platforms. FinTech will, to a large extent, replace today’s banking institutions on some level. Having a robust war chest of startups in our portfolio that tackle the same problem from different angles should greatly support our strategy. So, I think it’s fair to say that our latest move fully corresponds with our overarching goal of expanding financial inclusion.
You have collaborated with FinTechs previously through FinstarLabs. How have those companies progressed since then?
FinstarLabs is focused on the future of financial services, and it has already developed some critical technical competencies that are likely to be crucial for this. It takes a four-pillar approach: invest, acquire, incubate and build. Currently, it has several ongoing mobile-centric projects that are already partnering with global telecom operators and multi-national payment systems. The core of these projects is our proprietary Big Data platform, which connects more than 100 different data sources. The scope of the integrations is unique for global FinTech. This platform and technology, along with new approaches to the use of real-time data, allows us to build a range of FinTech products of a new category, especially for the lending business, where data and smart customer acquisition are crucial for business success. We are also using a great many technologies that have been developed in the AdTech and MarTech industries, and transferring this expertise to FinTech. Their first results will be announced later this year. FinstarLabs’s approach differs from our new initiative in the way it is focused on more hands-on operations and has more of an in-house approach.
What financial technologies are you most excited about for the future, and which ones do you believe have the most potential to be industry game-changers?
It’s not about ‘potential game-changers’ – technologies are disrupting and transforming the game right now. This process will only continue, and we intend to be at the vanguard of that trend. Big Data, artificial intelligence, complex algorithms, mobile and cloud computing, AdTech – it is all combining to create a revolution in the financial services sector. After this revolution financial services will be available to far more people than currently, in many more markets, be more affordable, be far better tailored to the individual consumer, and be an infinitely better, smoother, more convenient experience for customers. New AI-enabled financial services will change the ecosystem of today’s FinTech landscape radically in the near future.
But if we were to discuss one technology, I’d say blockchain. We still don’t fully comprehend its potential: we are seeing the nascent movement toward it in the finance industry, but it could impact far beyond that sphere, with derivative ideas like ICOs. I see this situation as being a little like the internet in the early nineties, when many of us saw great potential, but we still underestimated the profound effect it had on our lives.
What are the challenges facing the financial services sector and FinTech industry over the coming years, and what will be the most significant trends to emerge?
Regulatory changes have been both a boon and a huge distraction to the global development of the FinTech industry. FinTech is developing at such a pace that many regulators are struggling to adjust to the almost daily-changing reality. This creates situations where a fledgling sector is excessively regulated. Meanwhile, the most progressive regions – such as the UK or Singapore – put a lot of emphasis on supporting FinTech and the startup community in general. I think finding an equilibrium will take some time. However, early initiatives – such as PSD2 in Europe – clearly show the direction regulators across the globe will eventually be taking. This creates exciting opportunities for newcomers who can look five or 10 years ahead and visualise the new business models that will transform the financial services industry.