Bulgaria
The majority of banks are foreign-owned, and the technology they use matches that deployed across their group at the time of investment. Many of these systems are due for
upgrade by 2020. Organizations from a number of countries use Bulgaria as a back office and technology center for Europe, including some financial institutions. The result is that their Bulgarian operations can be used as pilot locations to implement new core banking systems and other specialist technology products. The high-tech market is dominated by the major global players, with only a few niche competitors. This is partly due to the relatively low penetration of internet banking and even lower penetration of mobile banking. The level of trust in the local banking market is another factor in making consumers more conservative about adopting more innovative products, particularly from relatively unknown companies. However, there are Bulgarian companies that focus on specific areas of the financial market, providing solutions in areas such as consumer loans, debt collection, insurance and more. A number of innovative IT companies based in Bulgaria mainly focus their efforts on Western European and North American markets, where the value return is much higher. Bulgaria has the second lowest ratio of banked population (63%) of all CEE countries and the second lowest penetration of online banking (5%). However, almost all banks offer their customers e-banking systems. It seems that banks are aware of changing customer needs and shifting preferences, focusing mainly on digital channels, just as in other CEE and Western European countries. On the one hand, therefore, banks are constantly developing established financial technologies; on the other, however, they are starting to seek innovation through the use of emerging financial technologies (Deloitte 2016, pp.
94-95).
Czech Republic
The Czech banking sector can certainly be considered as one of the most innovative of all CEE countries. One example is contactless cards, which have become synonymous with innovation, especially in CEE. According to Visa Europe the Czech Republic leads the CEE region with 3.3 transactions per month per capita. However, those figures are still below the scores being witnessed in Western European countries (such as the UK’s 30 transactions per month). In terms of value, Czechs spend on average EUR 64 per month per issued card, more than in Spain (EUR 16). As the Czech banking sector is one of the most innovative in the CEE region, many globally-utilized customer-facing products and services have been already implemented. Banks will probably start looking
for new business opportunities (also outside traditional banking segment) in co-operation with FinTech companies working as the facilitators of innovation. They might potentially leverage user-friendly mobile apps handling payments services, personal finance management processes or out-of-the box mobile wallets. Thanks to the open API of these solutions, banks will be able to integrate them seamlessly with their IT systems and, what is most important, create new monetization strategies and open new sources of revenue. This would be required also by the implementation of the EU Directive on Payment Services (PSD2). (Deloitte 2016, pp. 121-124).
Leading Czech FinTech startups:
SoNet. Comprehensive white label payments solution that offers a wide range of software and hardware services, such as payment terminals, cards, tools to manage terminals, loyalty programs and discounts, etc.
Worldcore. An internet-based financial services provider offering modern payment solutions for e-commerce, businesses and individuals.
ShopKeeper. Online cash register and POS solution that offers tailored
Cognitive. Fraud Detection. Real-time adaptive fraud detection and user authentication software for web and mobile.
Kup Najisto. Online payment service offering deferred payment methods in the Czech Republic.
Fundlift. A Czech equity crowdfunding platform.
Croatia
Although market leaders and established FSI players produce most FinTech innovations, and their “mother companies” have significant influence, more and more local players are emerging with a focus on the market who are more than capable of delivering inventive FinTech products. In Croatia, big banks and insurance companies tend to have strong IT departments and considerable internal development capability, currently mainly focused on e-banking and m-banking solutions (such as online branches, online credit requests and calculators and new functionalities for applications etc). This leaves considerable opportunity for emerging FinTech companies to offer their
servicer or solutions to smaller players on the market. There is also a trend in government towards enabling users with tokens or accounts from e-banking solutions to use such credentials to log into government services. This indicates that the government is ready to adopt technologies and services that help them, opening a whole new niche market for FinTech companies. The FinTech market in Croatia is still in its early stages, and while there are many possibilities for new and innovative ideas, there are also many obstacles regarding legislation. Even in the age of the growing popularity of online banking, Croats still depend on bricks-and-mortar banking facilities. Online banking penetration in Croatia fell from 20% to 18% between 2010 and 2014. Even though the numbers for Croatia are relatively low in comparison to other CEE countries, banks in Croatia should consider transforming their business model to become more digital (Deloitte 2016, pp. 105-107). Leading Croat FinTech startups:
Oradian. Global technology provider developing solutions to enable financial inclusion. Their innovative cloud-based core banking platform allows financial institutions servicing the billions of customers at the base of the pyramid to radically improve performance, reduce costs and scale services quickly and efficiently.
Fiscal 1. Supplies and services mPOS systems, provides cloud backup and remote support.
BitKonan. Bitcoin trading platform with advanced order management.
Poland
In recent years, Poland has become a regional leader in technologically advanced, pioneering solutions in the banking sector. Mobile is emerging as an essential channel for Polish customers. According to the ING International Survey 2015, 60% of smartphone users have already used mobile banking or expect to use it. This is the third best score in Europe – right behind the Netherlands (67%), the UK (63%) and on a par with Spain. It indicates that mobile banking services have enormous potential for growth in the coming years. On the other hand, 38% of established retail banks in Poland still do not offer their services through the mobile channel, neither via a dedicated app nor a website based on “lite” / RWD (responsive web design)
architecture. Another example of the high adoption of innovation in the Polish banking sector is the use of contactless functionality in debit cards. Almost 80% of all cards already have this feature in Poland, compared to 54% in the UK. Some banking experts admit that “the digital maturity of Polish banks and the many interesting solutions offered to their clients may limit the development of non-banking innovators”. Solutions that succeed on this challenging market will have to be top notch. As a result, FinTech start-ups may never manage to build a dense network similar to the one that may be observed in the UK. Polish Finanteq has found its own way to collaborate with the banks in the area of digitalization. The company provides mobile finance applications such as m-banking, smartwatch apps and super wallets. These last ones are the combination of banking, payments and additional m-commerce services like remote bus tickets, parking fees, bill payments, coupons or event tickets. As the company Marketing Manager, Artur Małek, says, “We work closely with the banks. Co-operation underlies our business model” (Deloitte 2016, pp. 152-153). Leading Polish FinTech startups:
Creamfinance. A financial services company providing paperless short-term loans to clients selected based on advanced scoring techniques.
Kontomierz. Online personal finance management tool in Poland.
Kasomat. Polish instant loan provider serving emergency financial needs.
KioskPolis.pl. Online platform that offers short-term insurance plans and can be accessed at ATM in Poland.
Rankomat. Polish comparison website for car, real estate, travel and life insurance with ecommerce functionality.
mfind. Polish insurance comparison website for car, health, property and travel insurance.
Romania
The penetration of online banking in Romania is currently at a negligible 6%, signifying a threefold growth during the past three years. As e-commerce is on the rise, it is expected that the popularity of online and mobile banking will be aligned with this trend. However, with 45% of Romanians living in rural areas and showing limited interest in banking services, the development of the sector might face a serious barrier.
It is also to be noted that cloud solutions face special restrictions when applied to the financial sector. In most cases the deployment of a cloud computing solution will mean
“outsourcing of significant activities”, thus becoming subject to the obligation to notify the National Bank of Romania. Emerging FinTech players in the financial services arena are more likely to succeed if they choose to collaborate with an existing player or solve an issue that is particularly difficult to tackle. Those emerging service providers in the fields of payments and P2P lending will have both to face regulatory restrictions similar to those imposed on Romania’s banks and be ready to compete with banks. When entering such a high-volume, low-margin business, it will be difficult for FinTech players to gain significant market share and be profitable without offering corporate banking services that include salary disbursements. FinTech companies might therefore wish to enter partnerships with smaller banks in the market. These would benefit from FinTech companies’ agility and innovation, and would be likely to agree a profit-sharing model, in the absence of their own investment budgets. When entering consumer finance, FinTechs will compete with banks and other players in the area of customer experience and those risk models associated with specific niche segments. Emerging FinTechs might also have a significant role to play alongside the banking sector if regulatory change opens access to banking systems (such as customer accounts) or enables solutions to address Romania’s current e-commerce challenges, including customer’s trust in merchants and the move from cash-on-delivery to non-cash payments (Deloitte 2016, pp. 177-178).
Hungary
In order to obtain a comprehensive overview of market needs, in the summer of 2017 the Hungarian Central Bank (MNB) launched a market survey on FinTech innovations and their potential regulation. Market needs were surveyed taking into account the motivating factors underlying FinTech innovations through various channels. This section introduces the result of the consultation document (MNB 2017). In 2017 the Central Bank of Hungary (MNB) launched a market survey on FinTech innovations and their potential regulation.
MNB prepared a targeted questionnaire to assess the attitude and proposals of market participants developing and offering FinTech innovations. According to this
survey banks believe that they will continue to play a central role in financial intermediation. On the other hand the overwhelming majority of FinTech firms are in regular contact with banks or have turned to banks since their inception. This is due to the fact that in addition to financial support, banks can also provide assistance through the expertise gained during their operations. Access to banks’ extensive datasets is crucial for newly established FinTech firms and banks have thorough knowledge of the detailed legal requirements pertaining to the industry. Banks’ systemic thinking can probably also provide more accurate guidance on potential operational and financial risks. Traditional banking actors mainly foresee partnership solutions with respect to FinTech innovations. Banks’ motivation is based on their need to be familiar with efficient solutions and adopt them as soon as possible, and the flexibility observed in the attitude of FinTech firms and their ability to make decisions quickly may facilitate technological progress. One major element of cooperation is the provision of a business model which is sustainable over the longer term. Banks believe that cooperation and the development of incubation programs can facilitate long-term thinking, and as a result of that, innovations can become part of the traditional banking system. For several institutions, the low number of available FinTech solutions in Hungary hinders the utilization of the opportunities for cooperation, and in some institutions the complexity and lack of flexibility of core systems may limit the complete adoption of a promising FinTech solution. Currently, few innovative products are integrated into banking operations, but future plans are promising.
“At present, the focus on digitalization covers the development of online and mobile banking platforms and thus the range of transactions that can be completed via these channels is continuously expanding. Several banks already use some sort of mobile payment solution, and personal finance management (PFM) is also a popular product.
Banks have started preparing for the introduction of PSD2, and the establishment and development of the account information and payment initiation services is under way at most institutions. Based on the whole banking sample, altcoins and crowdfunding seem to have the least perspective, which is mainly due to banks’ conservative risk management policy. However, the surveys have shown that if an appropriately defined Hungarian regulatory environment is established, there would be demand for these
products as well. According to the surveys, on the side of banks, there is demand for the establishment of an Innovation Hub and a Regulatory Sandbox. However, some uncertainty also surrounds the Regulatory Sandbox, as 65 percent of the institutions have not decided whether they wish to participate, whereas 29 percent of the respondents would be willing and able to launch a testing phase with an innovative product or service even within a short period of time. Most FinTech firms already cooperate with traditional banking actors. FinTech firms typically do not feel rejected by banks. The market consultation confirmed that there are different types of cooperation.
Over one-third of the Hungarian companies in the MNB’s sample indicated that they are in a partnership with a bank, i.e. they are participating in a bank’s incubation program or acting as suppliers to a bank with an agency agreement. Banks obtain FinTechs’ know-how through acquisition fairly rarely. Openness on the part of the FinTech firms will typically continue, as half of the sample plan further cooperation. Complete rejection of cooperation was only indicated by three companies altogether” (MNB 2017).
“Banks believe that cooperation and the development of incubation programs can facilitate long-term thinking, and as a result of that, innovations can become part of the traditional banking system. For several institutions, the low number of available FinTech solutions in Hungary hinders the utilization of the opportunities for cooperation, and in some institutions the complexity and lack of flexibility of core systems may limit the complete adoption of a promising FinTech solution” (MNB 2017).
Currently, few innovative products are integrated into banking operations, but future plans are promising (Figure 14).
Figure 14. Types of existing and planned FinTech innovations among banks
Source: MNB 2017
Most FinTech firms already cooperate with traditional banking actors. “FinTech firms typically do not feel rejected by banks. The market consultation confirmed that there are different types of cooperation. Over one-third of the Hungarian companies in the MNB’s sample indicated that they are in a partnership with a bank, i.e. they are participating in a bank’s incubation program or acting as suppliers to a bank with an agency agreement.
Banks obtain FinTechs’ know-how through acquisition fairly rarely. Openness on the part of the FinTech firms will typically continue, as half of the sample plan further cooperation. Complete rejection of cooperation was only indicated by three companies altogether” (MNB 2017).
“In the case of FinTech firms, most existing services are linked to different forms of digital payments. Hungarian businesses are active in several segments, and their activities may affect almost the entire spectrum of the financial sector. The overwhelming majority of developments implemented by the companies so far include various digital payment solutions. Innovations providing online wealth management services (personal finance management – PFM) used for optimizing investment strategies are also typical. On account of the growing retail and corporate demand for FinTech solutions, FinTech firms are very open towards further developments. There is
also considerable interest in the new services introduced by PSD2. Over 20 percent of the respondents participating in the MNB’s market consultation believed that account information and payment initiation services have a perspective. Social scoring solutions based on the digital footprint that assist credit ratings also form an important portion of the planned developments” (MNB 2017). FinTech firms are fundamentally open towards regulatory initiatives to stimulate innovation. Most FinTech activity in Hungary is concentrated in retail account management and payments (Figure 15).
Figure 15. Hungarian FinTech landscape
Source: McKinsey 2017
Shinrai. MrCoin. Online platform that enables users to buy Bitcoins for Hungarian Forints (HUF).
B-Payment. Fizet.es. Online card payment service provider for Hungarian SMEs,
Transgate. Provides card payment solutions which are ideal for webshops, the collection of membership fees and fundraising
Fizetési Pont. Provides contactless terminals which enable payments, loyalty programs and mobile balance top-up.
Rufftech. Számlanyilvántartó (Invoice Registry). A Hungarian software development company providing online invoicing software.
VEMOCO. Connects the car to the driver's smartphone with the help of a plug-and-play device and provides continuous monitoring of data.
Forex Broker Stars. Forex Broker comparison service with additional cost alayzation and reporting function.
BankRáció. Comparison site for banking products in Hungary.
Funsave. The platform helps children to evolve and improve financial literacy through thought-out savings.
Brokerchooser. By comparing all types of online brokers and providing expert reviews, it enables users to easily choose the most suitable service provider.
Talk-A-Bot. Chatbot solution offered for corporates and brands to communicate on commonly used social media platforms.
Skoopy Goood. Online platform which enables groups to collect money on special occasions.
Creative Selector. Crowdfunding platform for creative ideas where you can choose to contribute with cash or by doing a small work.
Family Finances. Digital financial ecosystem for families integrating payment services, savings, PFM, and EduTech functions.
Conclusion
The transition from a socialist-type economy to a market economy was successful in that respect, there is now no non-capitalist state in BCEE region. The region's growth exceeds the EU average, but the gap between growth rates has slowed down considerably to pre-crisis levels.
Obviously, without the resources of the European Union, the growth of the BCEE-region would have been completely different, but in the last 13 years, their use far removed the economic policy and competitiveness that could have been expected of it.
Since joining to the European Union CEE and Baltic countries experienced a historically never-seen capital inflow due to the EU-funds. The convergence of the region towards the core states’ economic development is impressive in country-group and country level, but in regional level the convergence process is taking part more slowly.
The lagging regions’ key geographical characteristic is that they inhabit an area on the eastern fringe of the European Union. If the EU does not modify its policy towards the former socialist countries, European values are very slowly integrated into the public's attitudes. The main conclusion of the study is that the post-socialist EU Member States’
The lagging regions’ key geographical characteristic is that they inhabit an area on the eastern fringe of the European Union. If the EU does not modify its policy towards the former socialist countries, European values are very slowly integrated into the public's attitudes. The main conclusion of the study is that the post-socialist EU Member States’