How society changes with technology – Looking at digital transformation in finance, education and cars
At our investment company, Standout Capital, we discuss how industries change with technology. We look broadly at companies and industry sectors undergoing digital change. A company that is not a typical tech business today, might be a tech business tomorrow. There are three themes that we think are especially interesting; private transportation (cars), consumer finance and education.
WHAT’S HAPPENING WITH OUR CARS?
The self-driving, data-driven car will transform old sectors – Around 75 millions passenger cars are sold globally each year. Although a mass market for the self-driving car is several years away, we can already see its implications. It’s not only about being self-driving, but that cars are becoming data-driven too. Real-time information is creating new businesses. One example is new specialised car insurance companies with tailor-made products and premiums based on driver behaviour. In the US, Progressivenow offers a mobile app for a usage-based auto insurance. As self-driving cars will radically reduce accidents, it will transform a number of old sectors that were built on the fact that humans are poor drivers; insurance, healthcare, repair shops and traffic police. This shift will offer opportunities for new smart solutions adopted for smarter cars. Recent research from Arctic Startup shows there are a number of companies now exploring how to connect cars and software.
Shared economy will go mainstream – The sharing economy has a broad effect on several sectors like housing and transportation and their related labour markets. At the core of sharing is the idea of liquidity, i.e. that resources are used more efficiently while bringing value-realisation in formerly under-utilized assets. One of many technology opportunities is software making it easier for its users to tap into these resources. We like, for example, the mobile-based car rental service Car2Go (owned by Daimler) that is now on the streets of Stockholm, and the Volvo car-sharing service Sunfleet. Once the average consumer grasp the idea of sharing transportation resources that can be easily managed with the mobile, this will be an exploding market, changing how we use and own our cars.
The electricity logic and its opportunities – There is a conflict today between a car industry heavily invested in old technology (i.e. diesel and gasoline) and newcomers building on alternative fuels like electricity. Electricity will possibly also bring a shift in behaviour in a larger context. With what we call the electricity logic, the car will be an integrated part of our household economy, as we can fuel the car at home (through the power outlet, battery pack or solar panels), and we will measure and control it better as a component of our whole collection of Internet of Things, further made possible with the data-driven aspects outline above. The software opportunity is huge. Tesla already offers (unofficial) API access for third-party software developers.
HOW IS OUR PERSONAL FINANCE CHANGING?
The un-bundling of traditional financial consumer markets – There was a time not long ago when big banks were the sole suppliers of everything consumers needed to solve their financial needs; savings and transaction accounts, credit cards, mortgage, mutual funds, stock trading and advisory. This business is un-bundling, where new global and local niche players offer specialised verticals like payments and investments, often through new tech platforms. Swedish Klarna is an example of a new player offering alternative payment and consumer credit solutions. Peer-to-peer lending like Toborrowis starting to compete with merchant banking, and net brokers like Avanzaand Nordnet has since long taken over the banks’ share trading. This development will drive new opportunities for decades to come, and we will soon see new platforms offering home mortgage, competing with the very core of big banks. There is also be an enterprise software opportunity, as new software developers like Insicon (insurance enterprise software) offers platforms for financial startups. Stockholm is today one of the leading FinTech centres in Europe, according to research from the Stockholm School of Economics.
The freeing of personal financial data and the shift of power – Stewart Brand said that information wants to be free, and that is also true for our personal financial data locked in at banks, insurance companies and other institutions. With information access comes consumer power, and the balance is likely to shift. Traditional financial advisory, where the consumer had to meet with a bank official, is now partly done through smart apps like Tink and Qapital aggregating personal financial data. As financial information is increasingly free, it will create huge opportunities for tech companies to integrate and analyse that information through smart algorithms and offer automated tailor made advice based on individual data, disrupting the highly profitable financial management industry. US-based Wealthfront is already offering automated, low-cost fund and savings management through its tech platform. Owning and being able to use our personal data will bring benefits to consumers as merchants are willing to reward us for access to our data. In a recent cooperation between Wrapp and the largest bank in the Nordics, Nordea, users will be able to receive rewards, offerings and discounts based on what we buy, through an integration with the payment history stored in our bank accounts.
New payments will change the global transaction business – Research shows that less than 10% of our use of mobile phone is for calling, the original purpose of a phone, and the rest is everything else we do with this personal and intimate gadget. One of the fastest changing industries is mobile payments. According to consulting firm BCG, Banks handled $410 trillions in non-cash transactions in 2013, more than five times the amount of global GDP. Payments businesses generated almost $1000 billion in transaction-related revenues. The total represented roughly one-quarter of all banking revenues globally. There are huge opportunities in the global transaction business, and tech companies like Facebook (payments in Messenger) and Apple (Apple Pay) are looking at payments in various ways. In Sweden have startups like Swish (owned by the big banks) captured a part of the highly lucrative payments and credits business. Payments is also an industry un-bundling the traditional value chain, with new niche companies offering alternatives to traditional payments. One of these new channels are sms-payments where the transactions end up on your phone bill. The personal, individually associated mobile phone (with a unique number and other smart identification, like Bank-ID in Sweden) will offer many opportunities for innovative payment solutions. But never underestimate the staying power of big banks.
HOW WILL WE LEARN AND TEACH IN NEW WAYS?
Digitalisation of school communications – The digitalisation of schools is impacting every aspect from teaching and curriculum to administration and communication, a new digital ecosystem for schools. In Sweden for example, early initiatives centered around infrastructure where a company like computer wholesalers LIN Education captured a big share of the market. Student/school communication and administration platforms like SchoolSoftand Nova Software are today well established. Now comes the real challenge, how to effectively utilise the possibilities of a digital school that enhances student learning? There is a big opportunity to offer easy-to-use tools made for a still traditional sector.
The digitisation of educational content – The transforming of schools to a digital world is similar to transforming any company, where all stakeholders have to buy into the transition. The tools are there, and the students are tech savvy, so potential bottlenecks are the teachers themselves and the traditional educational publishers. There is a wide array of publicly available digital educational content. In Denmark, digital content is already at around 40% of the total market for learning materials – a share that has increased significantly in recent years. Clio Online (where Bonnier recently took a majority stake) is estimated to have around 35 percent of the Danish market, and now the company is ready to take on the international market. Furthermore, the Swedish company DigiExam has made it possible to write exams online. By adapting to the digital development of how students are studying, they are getting more schools to convert to this system. During the fall they have been expanding to New York and establishing a partnership with the global company Cengage Learning. How digital content and tools are used in the classrooms vary significantly and the decision is often left to the individual teacher. That is a challenging task. The content is fragmented, produced by everyone from established publishers to individual teachers using YouTube videos and creating their own content for their specific classes. Another example is Swedish Kognity, offering digital textbook for the IB programme internationally. There is a big opportunity to offer locally adapted, globally distributed, digital content.
An evolving digital school ecosystem – In most countries, education is a big market. For example, the Swedish government’s budget for education is SEK 60 billion annually, almost 10% of total expense. We think EdTech opportunities today in the Nordics are challenging but will improve in the next 3-5 years as the ecosystem evolves. Where we see some opportunities already today are in companies (1) creating high standard curriculum aligned digital content with integrated, customised learning modules, particularly in subjects like science (take a look at Twig in the UK) and (2) user-friendly responsive school administration systems.
To summarise, at the center of these three digital transformation themes in transportation, finance and education is the New Consumer (and sometimes a corporate buyer), armed with tools, know-how and ready to benefit from new ways of doing things. We think that the challenge is in the critical mass of tools, now probably reached in most parts of the world through high mobile penetration, the level of know-how about the tools (quickly increasing) and the readiness – fast shifting from early adopters to a majority.
(This post was originally published at Standout Capital).