We have been witnessing a worldwide revolution in the investment space over the past few years. Being able to invest in stocks, funds and many more instruments has never been as easy and cost-efficient as it is nowadays. However, some countries have had it worse than others – Hungary included.
While we may have heard of Robinhood and the waves it has created, we have not had similar options until Revolut introduced its trading services in the country. The situation changed for the better a couple of months ago, with the arrival of Lightyear. We had the chance to sit down with Martin Sokk, Lightyear’s CEO and co-founder, to talk about some interesting stories, positive surprises, valuable thoughts, and mentions of exciting things to come.
Lightyear is an investment application that helps users access over 3000 international stocks and funds. It makes it easy to navigate between international markets, with its multicurrency accounts and EU, UK and US investment offering at prices of 1 euro, 1 pound and up to 1 dollar per order. Users can even make money before they invest – uninvested money held in the app can generate interest from 2,75% up to 10,25%
The interview introduces:
- Martin Sokk and Lightyear, as well as their relationship with fintech superstar Wise;
- the various products and services which have arrived with the application;
- the background of an internationally acclaimed fintech company coming to Hungary;
- thoughts about today’s investment and fintech landscape; and
- what the future holds for Lightyear.
People, who follow financial news closely, may have heard about Lightyear entering the Hungarian market. To those, who may have missed the news, could you please introduce yourself and your company?
Sure! My name is Martin Sokk. I have been building products all my life. I worked in some enterprises first, but I think the most interesting part of my career was when I entered the startup world. After quite a few years in the fintech sector, I established Lightyear in 2020. Our main goal is to make sure that everybody in Europe – wherever they live, wherever they are – has good access to the global markets at a fair price, in a smart way, with all of the tools and data to make informed investing decisions.
Speaking about the fintech sector, you have held some pretty impressive roles at Wise. How did you find the transition from being an employee to becoming your own boss at Lightyear?
That is an interesting one: I have never thought of myself as an employee. We worked in teams at Wise, but we also had to be independent. We all knew how to identify problems, organize the work that needed to be done, solve these problems, evaluate the results, and decide on the next steps to take. As such, I was always working with the mindset of achieving the things that I want to achieve. This made stepping into the CEO role much smoother. As the CEO, you have to take responsibility for everything – and I was ready for it all.
So, you have always had the environment and the skills necessary to set you up to run your own business. How did the idea of starting Lightyear come about – was it the result of a long process or was there a sudden light-bulb moment?
Throughout my years at Wise, I have realized I have found my comfort zone in finance and technology – this was an area that I wanted to involve myself in. Then I came across an abstract problem: people are not investing.
I started talking to Mihkel (Aamer, co-founder of Lightyear) and he had run into the same issue. He is a really strong investor and people always come to him for investment advice. However, when he was asked in the past about how and where people should invest, he never had a good answer. There were no products out there, that he would have comfortably suggested to his friends.
When we looked into the problem more closely, we quickly realized that it was not too dissimilar from what Wise was solving – just in investments, not money transfers. We then explored the really complex investment environment around Europe, made sure we built the right technology to connect the different geographies, and then created an enjoyable experience for the user. We started with really simple licensing and a really simple product and then focused on making sure that the customers understand every single thing that we build.
We have spoken quite a bit about Wise. You have spent almost five years there. Taavet Hinrikus (co-founder of Wise) and many others have even invested in Lightyear. How is your relationship with the people at Wise, are you still keeping in touch with them?
Yes, I still meet up with quite a few people regularly. All of our funding rounds had investment from people at Wise – at one point almost half of their management team was invested in our company. These guys are a couple of steps ahead in their journey and we got to see how they overcame some problems we may also face in the future. It has been really useful to learn from one of the best in the world.
You are right in saying that they are among the best in the world. Wise is one of the few fintech companies that can turn a profit consistently and have had success in the stock market as well. Is there anything that you specifically learned during your time there, and implemented in Lightyear?
There is one main thing: Wise was never built for one market. Its whole mission was centered around making sure that it is able to enter every single country – and we are following the same approach at Lightyear. When we were developing our investment services, we had to consider a lot of things in a lot of different countries. The different currencies, languages, regulations, and customer needs all needed to be considered. Something may work in one country, but not in another one. However, despite the challenges, Lightyear can become truly global this way.
What would you say separates Lightyear from the rest of the competition?
Firstly, we try to get a deep understanding of every single market we enter – we did so with Hungary, Germany, and the United Kingdom among others. Beyond our research, we are always open to learning more and are ready to change our plans to fit local needs.
Secondly, we’re here to build great infrastructure. We do not necessarily focus on building a fancy feature set from the start. Instead, we make sure we provide lots of value for our customers right away. For example, we allocate our resources and develop our technology in a way that allows us to challenge local prices. That’s why we can offer ETFs for free and everything else super, super cheap.
You’ve touched upon your fee structure. It is surprising how much lower some of your fees are than your competitors – internationally and locally alike. How can you afford to offer these prices?
I would turn this question around: why are fees so high elsewhere? If you look into where the costs, the wholesale price of executing a trade is quite significantly lower than what retail customers face at a bank, for example.
I think the main problem is that the market is not challenged. A lot of great players in the space are lazy regarding this exact problem. They employ old thinking: pricing, business approach, and technology alike. Companies have not really automated their processes. Conversely, we try to build everything in a way that we need the least possible human interaction. The moment a human needs to touch anything in the system, the whole process gets slower and costlier.
I would even say we could lower our prices in the future, however, we are still quite small, so it may take some time until our trading volumes allow us to do so.
Let’s talk about interest rates. Most Hungarian banks offer low rates on deposits. They do so because they don’t need to increase them – their position in the market is safe. However, if someone goes to the Lightyear website, they can see that your interest rates are 4,25% on dollars; 2,75% on euros; 3,75% on pounds and 10,25% on forints. Why are your rates so much higher than the local players’ rates?
I could repeat my previous answer here. Banks make a lot of money on their clients’ deposits, so they would not gain much from offering high interest rates. We also make money from uninvested money on our platform, but we only take a fee of 0,75%. Whatever rate the central bank offers, we take this small piece from it and give everything else to the user. We want to make sure that the customers are able to get the most out of their money, especially in the current economic environment. If they keep their money in cash, they are effectively becoming poorer due to inflation. With Lightyear, they get to limit the decrease in their wealth until they find the right investment opportunity for themselves. It is a win-win situation.
How does Lightyear protect the funds of users?
We are a fully regulated investment firm in Europe – we are compliant with strict regulations and we report on our operations regularly. Customer protection is thus guaranteed from a regulatory standpoint. We also handle our own money and our users’ money separately. So, in the unlikely case that Lightyear disappears, the users’ money will still be there. We are not allowed to touch it in any way. Then beyond all these guarantees, there is the deposit scheme from the European regulator, so the money is insured as well.
It is important to highlight regulations. As many of us may have read, at the end of last year many crypto companies managed to essentially scam people due to the lack of regulation. But from what you are saying, nothing remotely similar could happen to Lightyear users.
That is right. We are not building a product for taking a lot of risk. We are building for customers who want to invest for a long time, who want to grow their wealth in the long term.
After launching in the UK, Lightyear has expanded to the Eurozone, and then Hungary to the surprise of many. A lot of fintech companies overlook Hungary – what made you choose our country?
Companies often disregard a lot of European markets. What we have seen is that there is actually a massive market outside the usual, big countries. People are underserved in terms of investment services across the whole of Europe, but in countries such as Hungary and Estonia, there are even fewer providers. We saw expanding here as a rather good opportunity due to the good access to customers.
The few big fintech players, who have entered Hungary, have been able to achieve some remarkable results. For example, Revolut has more than 800 000 Hungarian users (almost 1 million now). Did such experiences also play a part in your decision?
Yes, definitely. I think Revolut and Wise were smart to realize that there are attractive opportunities outside the main European markets. Wise has even opened an office and is also building its product here in Hungary. We can say we were inspired by their success, but it is important to note that without the right product, inspiration is not enough.
Did the Hungarian launch live up to your expectations?
The reception was quite surprising, we saw a crazy spike in growth in the beginning and we have been growing at an exceptional pace since. I would even say that Hungary is one of our fastest-growing markets. We have a product-first marketing approach and it is great to see that it is working. The customers have understood the value right away, they are giving us feedback and recommending Lightyear to others. Our multicurrency account, investment offering, and interest rates seem to be especially useful here in Hungary compared to other markets. Hungarians are now able to better protect their money against inflation, which is reflected by them signing up in big numbers and loving the product.
If we are talking about investments in Hungary, we need to mention the TBSZ account (Long-Term Investment Account, an account offering tax benefits). Are you planning on introducing this account type to your offering?
Shortly, yes. We are taking the steps necessary to be able to introduce the TBSZ account. It has been one of the most requested features throughout the launch here, and like I said, we always try to implement user feedback. Taxes are an incredibly important part of the investment journey, and we can only provide the full benefits of investing if all tax benefits are in place.
What is your view of the investment landscape currently? Last year a lot of people lost huge amounts in the stock market. One of the best strategies turned out to be liquidating positions and just holding cash – even with the high inflation rate. What do you think about the current state of the markets?
We are in a really interesting place. In the last year everyone has been trying to figure out which way the market is moving, but what is interesting to see is that our users have very different views. Some people love the volatility because of the excitement it brings to the market. Some people are rather passive – they are present in the stock market and are never going to leave. There are many other strategies as well, but I do not know which one is the best. Personally, I follow a rather simple strategy where I almost only buy and almost never sell, focusing on the long term. My thinking behind it is that I like to be in the market more than try to time the market. In the short run, many things can happen, but I think in the long run the global economy is going to grow.
What would you say to the people who are hesitant to invest in these turbulent times: why is it still worth investing at the moment?
I do think that before taking any actions, everyone should take a look into their financial situation. Make sure you have money to spend on the essentials. If you have any debt, try to repay it. Build up a comfortable buffer for emergency expenses. Overall, take care of yourself first. When all these things are sorted, then you can think about investing. I can’t tell you that you should invest, but I think there are benefits to investing even now. I would advise everyone to read about the way stock markets operate, explore some investing practices, and maybe even look for a pain point in the market and construct an investment thesis based on it.
Speaking of investing practices, what are your users doing? Do you see a passive or an active approach being more dominant at the moment on Lightyear?
Our users are probably more on the passive side, but I would not say they are completely passive. They buy and hold individual stocks, with a long-term view. They are not day trading. And this fits our goals as well. Investing is all about creating wealth, usually in the long term, and we are happy our users share our values.
You are part of the investment space, but at the same time, you are part of the fintech sector as well. What is your view of the fintech market and fintech companies in general?
We can all see that it is harder to raise money at the moment. This means that companies need to be more practical and that is actually good for the environment. When you are not building on top of a hype cycle, you focus more on creating value. There are companies that are forced to rethink their business models and value propositions, and there are companies that already have everything in place. Despite the difficult environment, these latter ones are still successful. Their users trust them because they can count on them in the long run. The investors are ready to put money into them even now. It is super interesting!
A lot of companies are filling in financial holes that they found themselves in. They have been using up a lot of equity and then debt funding as well, but all channels seem to have dried up quite a bit. What would you say to those who might have reservations about Lightyear’s financial situation and business model?
We held a big Series A funding round last year because we know it takes time and resources to build a good investment product. We wanted to make sure that we can focus on building the best possible product – and also have some presence in the market early on.
From day one, we have been rather conscious about how we make money. When do we introduce revenue streams? How do these revenue streams work with the specific type of customers we want to attract? Beyond making money, our pricing is set up intentionally to cater to a particular customer. We have free ETFs, and we have fees of 1 euro, 1 pound, and up to 1 dollar per order for certain individual stocks. This structure attracts people with a long-term perspective. Those who will not trade 10 times a day and incur a 10-euro fee for example, but rather hold money in free ETFs and occasionally take a position in individual stocks. We also make money on our interest-paying products. We only take a 0,75% cut, so usually, the more money that comes into our platform, the more money we are giving back to the users.
So effectively this creates an environment, where it is not necessarily in our interest to target people who trade a lot and gain from the trading fee. Rather, if people are successful in bringing more money to the platform, then our products are making money for them and for us as well.
Let’s turn to some issues specific to investment and trading companies. Robinhood and Revolut have been highly dependent on crypto trading revenues. Robinhood has been hurting publicly from the massive drop in crypto trading volumes, and Revolut may be in the same boat behind the scenes. Freetrade, a UK-based provider is rumored to be looking for potential buyers. How would you reflect on these problems?
I think there are different reasons why some companies are doing well, and some are not. A lot of them have been built on top of a massive hype cycle. They did not need to build a solid foundation and have a strict business plan like we did. With Lightyear we are making sure that our revenues and costs are aligned from day one. That is also why we still cannot decide on when to introduce crypto on our platform. One day you make a lot of money, and another day you make nothing – and that creates uncertainty in your revenues. From what we see, it is a highly unoptimized market. Even though we see the interest in crypto from the customer side, and we are open to the idea of introducing them sometime in the future, we want to focus on the basics: solving the broken investment market in Europe.
We have touched upon your Series A funding round from last year. It brought in 25 million dollars. How would you describe the process of obtaining the funds in such an environment?
A fundraiser is not a one-way process. It is not just that we went out to try and get the funding. Investors are looking for investment opportunities as well like Lightspeed Venture and Richard Branson did in our case. They have their own thesis regarding the market: presumably that the European investment market is broken. By investing in our company, they are reacting to this issue, they are executing a strategy. Regarding the difficult investment environment, it did not particularly matter at the time of the fundraiser. We are not building with a year or two in mind – we are building with a 10- to 15-year horizon, during which our surroundings may change a lot.
Are there any plans to raise more money in the near future or are you set for the time being?
We have no such plans at the moment. Right now, our focus is on making sure that we are able to get our product in front of as many customers as possible and help them get the most out of it. Last year gave us a rather comfortable buffer to operate with for many years. Maybe in the future, we will raise money again, but that will be to accelerate growth hopefully, not because we need it.
Since you are building with such a long-term view, how do you see Lightyear’s future? What would you be happy with seeing in the near-, medium- or long term?
Before we think about the future, we need to have a look at the present. And the sad truth is that Europeans are not investing. In the US, 50% of the population has some exposure to the stock market. In Europe, this number is around 15%, I think. In Hungary, it is even lower at 11-12%. So, our first goal is to create the best product, which can get more people to invest. Good pricing, access, and interface are all essential. When these requirements are solidly covered, then we can start expanding and making sure that everybody in Europe is investing – or at least raise the percentage of investors. If you ask me what I would be happy with, then I would say I want to raise this percentage as soon as possible. I would like to see people being able to invest, grow their wealth and retire comfortably in the whole of Europe. That would be amazing.
Do you have an exact number in mind in terms of increasing the number of people who are investing?
If we take that there are hundreds of millions of people in Europe, bringing 10-20% more to the stock markets would be a big achievement.
And what can we expect in the near future? Are there any new products or expansion plans that you can talk about?
We have already mentioned the TBSZ accounts in Hungary, and we are also looking into building Hungarian language capabilities into the product somewhere in the future. Then from the Estonian market, there is high demand for business accounts and other business products, so we are working on them as well. Users have also been asking to get more data and information from around the world. Other than the products, we are looking to enter new markets. Today, we do not operate in the Nordics, due to the different currencies there. Poland and Romania are also interesting, but it is the same situation. We are continuously looking at how we can approach these markets.
And to close off the interview: if you could say one thing, anything to the Hungarian people, what would you tell them?
Think about yourself, about your future, about what you want to do. Whether it is investing or any other life goal, start learning and working towards it – good things will come from it all. It is not that one day you wake up and your whole life is different. It is more about the long term. You have to go step by step and in the end, you are going to be successful in one way or another – whatever success may mean to you.
(Cover image: Lightyear)