Taking the friction out of financial services

Ishan Sinha and Pete Casella, Point72 Ventures, Financial Services

For most businesses and consumers, interacting with financial services represents a point of friction that distracts from actual tasks at hand. We all need financial products to accomplish our goals, such as loans to complete a much-needed purchase, payments to a vendor for services they’ve performed, or insurance that protects us when the unexpected happens.

At the end of the day, however, we aren’t looking for a financial product. We’re looking to accomplish something that just so happens to need a financial product to make it work. It’s inefficient — to pause whatever we are doing, go search for a relevant product, apply for and open an account, and then return to finish our objective with a new financial product in hand. We have historically had to accept this inefficiency because the institutions that store our money or lend to us are disconnected from the actual places we use that money.

This paradigm comes with costs. Financial institutions, without knowing who actually needs their products, resort to broad marketing campaigns hoping to capture the attention of the specific potential customers who see that advertisement at the exact time they come to realize that they need that specific financial product. This is expensive for financial institutions, and they often pass the costs on to end-customers in the form of additional fees.

We firmly believe that the future of financial product distribution will evolve into the seamless delivery of embedded financial solutions that have context about who you are, what you’re doing at that moment, and what you’re trying to achieve. Through contextual understanding of the customer, the right financial product or service will be delivered to solve the customer’s need at the moment they realize they have it. Done right, it will change the cost equation of the entire industry. By transforming product distribution from a marketing effort into a contextually delivered solution, the cost of delivering financial services will decrease and, more importantly, the historical friction associated with the discovery and consumption of financial services will be removed.

We believe that one of the best channels for the delivery of financial services will be business software. At its core, business software is both a system of record as well as a system of engagement. Technologies like accounting software, ERPs, CRMs, inventory systems, and HRIS platforms are all necessary for a business to operate. They also have contextual understanding about employees, customers, financials, inventory, and counterparties and understand what triggers would likely catalyze the need for new financial services. And because they’re where people are already doing their jobs, you can insert the appropriate product at the exact moment that the contextual trigger says they might need it. ERPs understand when a customer is late on an invoice and might need a working capital loan. HRIS platforms know when an employee has had a child or gotten a promotion, and therefore might need a savings account or an insurance policy. Point-of-Sale systems know when we have a valuable returning customer that might benefit from credit.

These systems become the new channels where competing financial services companies could all bid for the right to deliver their products to customers in contextualized marketplaces of appropriate products, all tailored to solve this specific need. This doesn’t require expensive blast marketing. It just shows up in the right place at the right time.

This concept of contextually delivered, embedded financial services, if done right, could be the new bank branch. It could be the paradigm that shifts every way we think about storing and engaging with our money. It could be the actual future of money, turning financial services from a product manufacturing and distribution business into something that’s unobtrusive, convenient, always there when we need it by algorithmically serving up the right product at exactly the time of need. In short, business software can take the friction out of financial services.

At Point72 Ventures, we’ve been active investors in SME business software that we believe will be the core delivery model on this thesis. We have several portfolio companies already that help us express our thesis on this broad theme:

• Nav: Recognizing that searching for the right credit products and selecting the right one is difficult for an SME, Nav created a platform that allows small business owners to access a marketplace of financing products within a business analytics suite. Taking that one step further, they actively partner with business software providers, such as Point-of-Sale system Clover, to contextually deliver credit insight and a marketplace of financial services to small businesses directly within the software that they use to run their business.
• Flare: An Australia-based cloud HR and payroll platform, Flare has built a free version of an HRIS that they distribute to small businesses across the country. Once their customers adopt the solution to manage their workforce, Flare earns the right to serve the employees with financial products such as retirement accounts and other banking products, all contextually delivered based on life events such as marriage, childbirth, promotions or retirement.
• Contabilizei: A company that provides small business customers in Brazil with a cloud-based accounting platform that automates the arduous and mandatory monthly tax-filing process for the country’s six million small business owners. Contabilizei solves a huge bureaucratic pain point for these companies, all while creating a unique profile of revenue and expenses on a transaction-level basis, which we believe will be the foundation for an SME focused full-suite banking offering in the country.

And finally, over the past few weeks we’ve announced two new companies to the Point72 Ventures portfolio: Bayzat and Sprout.

• Bayzat: A human resources and payroll platform in the United Arab Emirates. They not only help small businesses streamline HR processes, but also provide insurance carriers with improved distribution of health insurance products. We’re joined by Mubadala, Greycroft, and Endeavor Catalyst, with existing investors BECO Capital and Silicon Badia also participating.
• Sprout Solutions: A human resources and payroll platform in the Philippines that has introduced end-to-end processing and seamless automation across HR processes. The company intends to leverage its platform to provide a marketplace for financial services to the employees of their enterprise customers, starting with payroll advance and micro insurance. We’re joined by Dymon Asia, Next Billion Ventures, and Endeavor Catalyst, with existing investors Kickstart, Beenext, and Wavemaker also participating.

We at Point72 Ventures believe that the future of financial services involves clever, contextual distribution through business software that solves real problems for their target customers. We couldn’t be more thrilled to partner with these teams as they continue their journey on solving their customers’ (and their employees’) financial needs, right at the point of engagement.

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This is not an advertisement nor an offer to sell nor a solicitation of an offer to invest in any entity or other investment vehicle. The information herein is not intended to be used as a guide to investing or as a source of any specific investment recommendation, and it makes no implied or express recommendation concerning the suitability of an investment for any particular investor. The opinions, projections and other forward-looking statements are based on assumptions that the authors’ believe to be reasonable but are subject to a wide range of risks and uncertainties, and, therefore, actual outcomes and future events may differ materially from those expressed or implied by such statements. Point72 Private Investments, LLC or an affiliate may seek to invest in one or more of the companies discussed herein.