Over the past year, Lightyear has made remarkable progress in cementing its presence in Hungary. As we sit down with Martin Sokk, CEO of Lightyear, we aim to delve into the company’s journey, exploring their strategic entry into the Hungarian market and the insights gained along the way.
Martin shares the driving factors behind choosing Hungary, the challenges faced, and the strategies that have led to Lightyear’s success. From leveraging local expertise to embracing agile development, Martin provides a comprehensive look at how Lightyear navigates the dynamic landscape of fintech. Join us as we uncover the compelling story behind Lightyear’s expansion and the innovative approaches shaping their future.
(Source: Lightyear Headshots Photographer: Tom Harrison www.tomharrisonphotography.co.uk)
Since last year, Lightyear has made significant strides in establishing its presence in Hungary. Reflecting on this journey, I’d like to delve into your experience operating in the Hungarian market and your insights on it. To kickstart our discussion, could you share the rationale behind Lightyear’s entry into this market and what factors contributed to Hungary being a compelling choice for your platform?
Our approach to expanding into Europe is a blend of strategic analysis and practical considerations. A fundamental aspect is having a deep understanding of the market we’re entering. Attempting to develop a product without insight into the local dynamics presents formidable challenges. Hence, our prior connections and experiences in Hungary, including through my involvement with TransferWise (now Wise) and the establishment of a Hungarian office, provided invaluable insights into the market landscape.
Furthermore, leveraging the expertise of our team members with Hungarian backgrounds enabled us to capitalize on local knowledge. This familiarity with the market encouraged us to explore opportunities in Hungary. Additionally, the practical aspects, such as the ease of market entry and available partnerships, influenced our decision-making process. We identified a manageable level of complexity in entering the Hungarian market, which aligned with our strategic objectives.
Our approach emphasizes agility and responsiveness over attempting to predict every market nuance. By introducing a minimal viable product early on, we invited feedback from customers to refine our offering. This iterative approach proved fruitful, as it allowed us to adapt to the specific needs and preferences of Hungarian users. The enthusiastic reception and organic growth of our basic product underscored the demand for our solution in Hungary.
Subsequently, we prioritized enhancements based on customer feedback, such as the recent launch of TBSZ (Long-Term Investment Account – an account offering tax benefits) accounts in response to overwhelming demand. Moreover, our commitment to enhancing the user experience led to the introduction of Hungarian language support and dedicated customer service. This localization strategy reflects our recognition of the importance of catering to the unique requirements of diverse markets within Europe.
In essence, our success in Hungary underscores the effectiveness of this approach. By combining a robust product offering with responsive adaptation to local needs, we’ve witnessed remarkable growth and positive feedback, affirming the relevance of our platform in the Hungarian market.
Reflecting on the past year, did you have any unique challenges regarding the Hungarian market?
Looking back on the past year, we’ve encountered some distinct challenges in navigating the Hungarian market. One notable hurdle was the introduction of the Hungarian language to our platform. Linguistic diversity presents a complex task, with each language comprising over 100,000 words and nuances that must be accurately conveyed.
Initially, we explored the feasibility of leveraging AI for translations. However, we found that existing AI capabilities lacked the necessary context for accurate translations, particularly for shorter strings of text. Consequently, we opted to invest in human expertise, hiring dedicated individuals to ensure the quality and consistency of translations. This approach involves continuous effort as our platform evolves, with new features and updates requiring ongoing translation efforts to maintain standards.
How big is the company? How many people are working in the Hungarian team?
So we have 55 people in our team, who are split between the UK and Estonia. In Hungary, I think we have around five people. None of the markets have a team, we don’t have a UK team or an Estonian team or a Hungarian team. We are effectively focusing on areas. We focus on how we introduce local stocks or introduce a better investment universe. However, the significance of the Hungarian market is evident in the allocation of resources from various departments to support its growth, encompassing aspects such as business development, engineering, language localization, communication, and marketing operations.
Are there any features or products that seem particularly popular among Hungarians?
Among the features and products we offer, TBSZ has garnered substantial popularity. TBSZ provides users with opportunities to generate yield on their investments through various avenues, including interest accrual on Hungarian forints, currency conversion into euros for interest accrual, and investments in money market funds. This popularity extends beyond Hungary to other European markets. Additionally, Hungarians have demonstrated a keen interest in ETFs, with a higher penetration rate compared to other European markets, indicating a growing appetite for diversified investment options.
Furthermore, we’ve observed significant interest in foreign exchange among Hungarian users, driven by various factors such as currency diversification and investment in the US stock market. These trends underscore the dynamic nature of the Hungarian market and inform our ongoing efforts to tailor our offerings to meet evolving user preferences and needs.
How do you see the level of financial literacy in general in Hungary or in Europe?
It’s pretty weak. The majority of people lack engagement in investment practices and fail to devote significant efforts toward understanding wealth accumulation and financial independence.
Last year my colleague Daniel had an interview with you. You also covered this topic and you said that the investment culture and financial literacy is really low. Has anything changed in the last year?
One thing did change. Over the past year there was a shift in the global interest rate environment. Central banks, including the one in Hungary, have responded to inflationary pressures by adjusting interest rates, transforming cash holdings into financial instruments capable of generating yield. Despite this, traditional banks have been slow to pass on these benefits to customers, prompting individuals and businesses alike to seek alternative avenues for maximizing returns on their savings.
In response to this evolving landscape, we’ve taken proactive steps to empower individuals to make their money work harder for them. By offering opportunities for cash to earn interest, we’ve encouraged a shift in mindset towards financial management and wealth growth. This newfound emphasis on optimizing financial resources is reflected in increased interest in investment vehicles such as Exchange-Traded Funds (ETFs), as individuals seek to leverage their capital more effectively.
When you mention ETFs, spot bitcoin ETFs always pop up first in my mind because of recent news. Do you consider doing anything with cryptocurrencies in the near or far future? What can customers expect?
Regarding cryptocurrencies, particularly bitcoin ETFs, there are regulatory hurdles to consider in Europe. While Bitcoin ETFs have gained popularity in the US, regulatory frameworks such as MiFID II pose challenges to their adoption in Europe. This regulatory landscape necessitates the development of regionally compliant investment products, a process that is ongoing.
Looking ahead, the regulatory framework for cryptocurrencies in Europe is evolving, with initiatives like MICA set to provide clearer guidelines for market participants. As these regulatory frameworks mature, we remain vigilant in assessing opportunities to introduce cryptocurrency-related offerings to our platform, aligning with regulatory requirements and customer preferences. While the timeline for such initiatives may vary depending on regulatory developments, we are committed to exploring avenues that align with our commitment to providing innovative and accessible financial solutions to our customers.
Do you see any upcoming fintech trends or technologies that Lightyear is particularly interested in or excited about?
I might have an incredibly boring answer. Europe currently lacks a robust investment infrastructure. Developing this is an incredibly complex task, requiring the connection of all stock markets in Europe and globally, ensuring seamless financial flows. This is a lengthy and intricate process.
At Lightyear, we have been diligently working on this and have developed one of the best infrastructures in Europe. However, it demands significant time and effort. When done correctly, it will result in a superior product for everyone in Europe, providing access to all desired exchanges and instruments at competitive prices. Although this progress occurs behind the scenes, it will be a significant game-changer in the European market, albeit without the visible excitement that AI generates.
You mentioned AI. How do you see AI impacting the fintech industry?
AI is indeed interesting. Its greatest strength lies in organizing information. I predict AI’s initial impact will be on backend processes, such as streamlining operations, conducting checks, and managing customer information. While these enhancements might not be visible to customers, they will significantly improve business efficiency and simplify operations.
In the investment world, where vast amounts of information exist—thousands of stocks, ETFs, financial data, and news—AI can excel at synthesizing this data, offering better insights into specific instruments or sectors.
Are you currently using any AI technologies or models, or do you plan to integrate some?
Yes, we are utilizing some AI technologies. For example, we have a feature which provides an overview of why a particular stock has moved.
That sounds similar to Revolut’s notifications.
Indeed, but while Revolut might simply notify you of a stock’s movement, we aim to explain the reasons behind it. For instance, our app might inform you that Coinbase shares are rising due to an increase in crypto stocks or that Alphabet’s stock is affected by potential changes in their AI-powered search services.
Do you plan to incorporate predictive analytics or investment trend analysis features using AI?
Possibly, but it’s difficult to predict the future with certainty. AI can offer estimates based on historical data, which might become more accurate over time.
However, AI cannot reliably predict short-term stock movements. If it could, it would revolutionize the market. Instead, AI can provide deeper insights into company performance, helping investors make more informed decisions. Personally, I would find it valuable if AI could help me understand the performance of the companies in my portfolio, assess any changes, and evaluate my investment strategy and risk. This would be incredibly helpful, but I don’t foresee AI managing portfolios autonomously in the near future.
How do you see the investing culture and behavior of younger generations? Are there plans to provide family banking solutions or educational resources for them regarding investments?
I’m quite optimistic about the younger generation’s financial capabilities. It seems they’re becoming increasingly adept, perhaps even more so than older generations. This could be attributed to their access to vast information resources and their inherent curiosity about the world.
It’s genuinely inspiring to witness the growing number of young individuals taking an interest in managing their finances. Many are even willing to take calculated risks—a natural inclination for youth, and a commendable approach to learning and growth. In many ways, younger generations seem better positioned to adapt to changing environments and embrace new concepts compared to their older counterparts.
We’re observing more young people contemplating their financial futures and making informed decisions, which is incredibly encouraging.
Do you have demographic insights regarding the age distribution of Lightyear users? Are younger users more prevalent, or is it a mix?
Currently, our user base spans a wide age spectrum, but the average age tends to hover around 30 years old. It seems that many individuals are beginning their investment journeys, making this an opportune time for many to start exploring financial opportunities.
Different age cohorts exhibit distinct investment behaviors. Older generations typically prioritize stable income streams, while younger individuals are more inclined to embrace risk. This divergence in risk tolerance often correlates with differing time horizons—older generations seek stability for the present, while younger ones are willing to take on more risk for potential future gains. It’s fascinating to observe the varying levels of curiosity and engagement with the market among different demographics.
When did you personally start investing, and what is your investment strategy like?
I embarked on my investment journey approximately 15 years ago, dabbling in various investment avenues. Presently, my investment portfolio is divided into two halves: one composed of relatively safe investments and the other of riskier ventures.
The safer portion consists of investments in large indexes, which I envision holding for the long term without interference. Employing a strategy of dollar-cost averaging, I make regular investments into stable assets like the S&P 500, adopting a prudent, long-term approach.
Conversely, the riskier side of my portfolio involves investments in startups and hedge funds—ventures that lack liquidity and may take years to materialize. While these carry greater risk, I maintain a comfortable outlook, relying on the stability of my safer investments. Both aspects of my portfolio have been successful in their own right, albeit with the riskier side requiring patience as it transitions from speculative investments to tangible returns over time.
When advising younger generations on investment approaches, would you recommend adopting a similar strategy to yours?
No, I wouldn’t advocate for a one-size-fits-all approach. Everyone has their unique comfort zone, which varies greatly. My investment style differs significantly from that of my wife’s, for instance. She leans towards safer investments, and that’s perfectly valid. There’s no right or wrong way; it’s about aligning your investment strategy with your ambitions and risk tolerance. It’s crucial not to engage in investments you don’t understand or take risks simply because others are doing so.
I encourage starting with the safest options to grasp the fundamentals of money management. From there, you can explore different avenues. Some investors prioritize dividend payments for consistent cash flow, while others opt for growth stocks without immediate cash returns. There are also those who prefer to hold cash for its stability or invest in money market funds. The key is to find what works best for you and your financial goals. Mimicking others’ strategies can lead to discomfort and errors.
Are there plans to incorporate educational features for customers within Lightyear’s platform?
Absolutely, we’re already implementing and expanding upon educational features. Rather than inundating users with blog posts, we aim to integrate education seamlessly into the product itself. Our platform provides various tools such as analyst opinions, financial performance metrics, and model portfolios, all accompanied by explanations. These features offer users hands-on experience and understanding of investment concepts, empowering them to make informed decisions.
Let’s jump on another topic. Regarding regulations in Hungary, how does Lightyear ensure compliance while offering investment solutions in the Hungarian market?
Compliance with regulations is a top priority for us, reflected in our dual regulation in the UK and Europe. Hungary operates within the European regulatory framework, necessitating adherence to both overarching European regulations and local legislation. Our legal team continually monitors and assesses the regulatory landscape in each market we enter, ensuring the protection of customer rights and compliance with all regulations.
Regulatory oversight is rigorous, with frequent audits and scrutiny from regulators. When entering a new market, we engage with regulators and coordinate efforts to ensure compliance with local regulations. Thus far, we’ve navigated regulatory landscapes seamlessly, with no regulatory issues arising since our inception.
How do Hungarian regulations compare to those in other countries where Lightyear operates?
Hungarian regulations aren’t necessarily stricter; rather, each country has its unique regulatory nuances and perspectives. The unified European regulatory framework has facilitated compliance efforts to a considerable extent. While challenges exist in navigating local requirements concerning access to stock markets and currencies, these are inherent to operating in any market. Overall, we haven’t encountered any regulatory issues since our establishment.
Looking ahead, what are Lightyear’s main goals and priorities for the Hungarian market in the coming years?
In our first year, we introduced our global product to the Hungarian market. As we progress into our second year and beyond, our focus remains on localization and enhancement. We aim to refine our offerings to ensure seamless tax reporting and broaden access to instruments specific to the local market. Improvements to our global product, including the introduction of fractionalized ETFs and enhancements to TBSZ accounts, are also on our agenda. While last year was about market entry, this year is about deepening our presence and ensuring every Hungarian has an exceptional experience with Lightyear.
How do you assess the growth of Lightyear in the Hungarian market since your entry?
The growth in Hungary has been remarkable and ranks among our best-performing markets. We attribute this success largely to organic growth, where satisfied users naturally bring in new customers. Word-of-mouth recommendations exemplify this phenomenon. By focusing on product-led growth and actively listening to customer feedback, we’ve cultivated a loyal user base, which continues to expand organically.
Could you share your vision for the future of fintech over the next decade, and where Lightgear fits into that vision?
In the realm of fintech, I envision a significant shift catalyzed by technology. Historically, finance has been somewhat resistant to technological transformation, with many processes remaining manual. However, I firmly believe that technology has the power to greatly enhance people’s lives.
Traditionally, financial institutions prioritize high net-worth individuals due to revenue considerations. However, technology is leveling the playing field. Regardless of account size, everyone can receive equal treatment and access to financial services. This democratization of access is where fintech companies excel.
Fintechs like Lightyear are at the forefront of this transformation, optimizing infrastructure and delivering enhanced financial services directly to customers. Companies like Wise have demonstrated this exceptionally well, and we aspire to achieve similar success. I’m incredibly excited about the potential of fintech to democratize access to financial products and services, and Lightyear is poised to contribute significantly to this evolution.
Fintechs are driving innovation while banks have significant resources. For a long time, it seemed like a competition between the two. Now, big tech companies are entering the financial space. How do you see this trend?
It’s an interesting trend. Many large companies, like Apple, have substantial financial operations even beyond their primary businesses. For instance, Apple’s App Store handles massive financial flows, necessitating robust financial infrastructure. Realizing their competence, they are expanding into financial services, as we’ve seen with Apple Pay and Apple Savings.
Companies like Uber and Bolt also manage large financial operations due to the volume of transactions they handle. These companies recognize the opportunity to leverage their existing infrastructure for financial services. While it’s challenging because finance is a different domain, companies like Apple have shown it’s possible to succeed.
Startups, on the other hand, often specialize in specific domains, focusing intensely on achieving scale. This focus allows them to challenge established players. In the end, competition from both large companies and startups drives innovation and ensures better products and services for everyone.
My last question is that what advice would you give to our readers, particularly the Hungarian ones?
I would encourage everyone to think long-term about their finances, especially regarding retirement. Consider your retirement goals and what you need to do now to achieve them. It’s a valuable exercise, regardless of your age. Personally, I’ve started investing for my six-month-old daughter. I want her to have financial stability in the future, enabling her to explore the world and pursue her interests.
How risky is her portfolio?
Her portfolio is focused on the tech sector, as I believe technology will continue to drive significant improvements over the next few decades. Given the long time horizon of 30 years, I’m comfortable taking more risks. The tech sector is a key focus, reflecting my belief in its transformative potential.
Thank you very much for the interview and enjoy your stay in Budapest!
Thank you.