When you think “FinTech,” you imagine such cities as Prague, Warsaw or Ljubljana. Perhaps you think about regions outside of Europe first. Although the Central And Eastern Europe’s (CEE) technology is not a subject of international newspapers’ cover stories, there are many initiatives within the region that make it interesting in terms of FinTech. Ultimately, it is not a coincidence that many worldwide known tech ventures, not only FinTech, have their roots in CEE. Skype and TransferWise were invented in Estonia, Prezi – a presentation software – originated in Hungary, Avast – a cybersecurity software from the Czech Republic and Bitbay – one of the biggest European bitcoin & cryptocurrency exchanges was founded in Poland.
This list could be much, much longer. As was stated in an article by the World Economic Forum:
CEE developers have written the code for the global flight search engine Kayak. They have developed one of the biggest peer-to-peer lending marketplaces in the world. Engineers from this region stand behind the code of the most popular Bible app in the Appstore. They have developed software used by 25% of the world’s heavyweight vessels in the ro-ro category. Bearing this theme in mind, let’s not ask where one of the biggest aviation parts marketplace was built. There are dozens of instruments used by leading world financial institutions, starting from market intelligence tools, continuing with data visualization and finishing-up with Portfolio ROI optimization Systems (undisclosed due to NDA). The number of cases is pretty impressive.
The outsharing powerhouse is being successfully explored by some well-known corporations establishing their IT departments within the region. HP is present in Bulgaria, NASDAQ is powered by Lithuanian devs while IBM has its innovation centre in Poland. International tech consulting players like Accenture, Capgemini or Epam use the CEE tech talent pool to strengthen development teams. Finally, talents from this region relocate and occupy engineering positions at tech companies like Google, Facebook or recognized organizations like CERN.
Factors Driving The Region
From Albania and Macedonia (FYROM) south to Poland and the Baltic states north to the CEE region is inhabited by approximately 100 million citizens. Comparing this to Northern-Atlantic countries, the population is still young and vivid – about one-quarter of this being so-called Millennials: people born between 1980 and 2000.
Over the last thirty years, the region has faced many revolutions – such as the breaking of communist regimes or fighting for independence in the Balkan war in the 1990’s, or the more mental or cultural ones, such as the joining of NATO or the European Union. Nowadays, the streets of major cities in the region look like their counterparts in Germany, France or Finland, with the same brands advertised, the same cars driven and, in many cases, the same money in ATM’s.
The region is developing rapidly (annual GDP growth was 4.4% in the first quarter of 2018) which results in the fast increase of wealth. Despite the recent economic crisis, people again have enough money to spend, not only for their basics needs but for purely consumption purposes as well. This boost in consumer spending has been observed. The migrations within EU and different models of living, has resulted in the subtle but significant change of everyday culture in the CEE states, transplanting foreign behavior matrixes.
Additionally, there is fertile soil for new tech to grow. As a manufacturing center for Western Europe companies, Central and Eastern Europe is known for its highly skilled and trained engineers. For instance, coding is one of the subjects taught in Estonia’s public schools from kindergarten on. That, along with a strong mathematics curriculum in most countries, has resulted in very positive results in coding. For instance, developers from Poland regularly place in the top three in programming contests, with Hungary and the Czech Republic placing in the top ten. Just as a comparison, US programmers placed 28th in the last Programming Olympics according to HackerRank.
On the other hand, CEE is preparing itself for the fourth industrial revolution. Step by step, it has become the global outsharing region (do not confuse this with an outsourcing center; outsharing is defined as working together on a solution with your remote partner) and a hotbed for tech startups. These are only a few reasons why you should follow the trends in Central and Eastern Europe.
Major Trends In Central And Eastern Europe
Combining insider knowledge about the region and observations of global trends, you may be able to anticipate what may fuel the development of the FinTech industry in post-Soviet Union satellite states.
Trend #1: Further development of payment and money transfer solutions. As described in more detail in a previous Forbes post, FinTech incumbents started historically with niches that were on the one hand abandoned by traditional banks and, on the other hand, not as strictly regulated. That is why there has been more transaction service providers originating in the region, compared to different types of FinTech companies.
In January 2018, the second payment service directive (PSD2) by the European Parliament began to be enforced. It allows business and retail consumers to use non-bank payment providers and, at the same time, obliges banks to provide these third-party providers access to customers’ accounts. Therefore, it is believed PSD2 can be a driver for the further development of payment providers.
Especially given the fact that they can ignore some demographic trends, as already mentioned, and migrations within the European Union and money transfers. Simultaneously, in Poland, there are about one million Ukrainian for-profit reasons. Increasing number of companies has put our eye on this perspective group.
Trend #2: Business-to-business. Retail banking requires relatively more effort and brings in lower returns in exchange than servicing Small and Medium Enterprises (SME’s), not to mention large enterprises, which has been one of the remaining strongholds for banks (aside from trading, mortgages and services for corporations). Therefore, FinTech startups began offering their products to individuals but are slowly entering the corporate sector.
One of the examples is Transferwise. This provider allows money to be sent with a small fee and actual mid-market rate, avoiding high spreads.
Trend #3: Growth in complexity. From single service providers with excellent client experience, FinTech incumbents have evolved into mature companies with the high tech background.
Teambrella’s venture concept of Ethereum-enabled peer-to-peer insurance is an example of the complexity of contemporary FinTechs. Instead of providing insurance itself, the platform enables its users to create “insurance teams” that have control over the entire process, from admission to decision-making over reimbursement amount. The company claims that its concept solves problems arising in the insurance industry and increases transparency.
Trend #4: Blockchain. Unlike in other countries, the Poland banking sector has boosted the FinTech revolution much more than startups. Unsurprisingly, they have adapted to innovative solutions promptly. One of these is Alior Bank, which launched their document repository based on blockchain technology this summer. What it is more, the Warsaw Stock Exchange works on a crowdfunding platform based on distributed ledger technology.
Trend #5: Aggregators. Traditionally, FinTech startups are compact and not very crowded ventures. Their employee numbers can be compared to the number of staff at family-run hotels. They focus on a single product but very often experience a shortage of funds needed for further product development, diversification or marketing.
The parallel to the hotel industry goes further, with regard to how mid-size entities face similar obstacles. The game-changer for the branch, however, was the launching and increasing popularity of such websites as booking.com or trivago.com. In FinTech, there is something similar: the growing market entries of service aggregators like find.exchange, which compare FinTech incumbents offering international transfers to individuals and (soon) to legal entities.
The FinTech landscape has evolved rapidly in the CEE region. CEE states have fertile soil to grow innovations and their governments do their best to acquire new investments and be perceived as FinTech hubs. However, the value of the FinTech industry in Central and Eastern Europe is estimated at $2.6 billion, which is a single strand of hay compared to the haystack that is the entire continent. According to CBInsights, aggregate FinTech funding in Europe grew by 120%, from $121 million to $267 billion, in 2017. At first glance, the growth may look overwhelming. And it is. If you are looking for the cause, Central and Eastern Europe is definitely a place to observe.
