Banking & fintech innovation in the CEE region

With the banking & fintech market in the CEE region growing significantly in the past few years, The Paypers went to Unchain Fintech Festival in Romania to find out why

In a former Austro-Hungarian fortress in Oradea, Romania, something magical happened between the 13th and 14th of July – Unchain Fintech Festival. The first major fintech event in Central Eastern Europe, Unchain gathered some of the most important experts in the banking and financial field to talk about the future of money. The pilot edition reunited over 300 participants from over 20 countries, representatives from central and commercial banks in the CEE region, technology enthusiasts, startups, and investors; and The Paypers was happy to be part of it.

Unchain Fintech Festival speakers offered insights about the future of the fintech and banking industry, addressing current issues, such as regulatory frameworks, central bank digital currencies, innovative payment systems, digital assets, and blockchain technology.

Inside Oradea, Romania Fortress – The Unchain Fintech Festival tent

One of the strong points of Unchain, besides being held inside a Romanian Medieval Fortress, was that it shared perspectives about businesses and consumer behaviour in the CEE region when it comes to banking services adoption and payments. Szymon Staśczak, Head of CEE Visa Consulting & Analytics presented key digital trends in the banking sector in CEE, and, among these, we found that there is a big interest in dedicated apps for children, with financial institutions trying to find revenue streams within this group. The background of this trend is based on children’s interest in purchasing their dream items, especially in the group of 7-10 years old, in online shopping (11-14 years old), and in adopting cashless payments, savings, and having spending autonomy.

Another trend spotted was that businesses in financial services in CEE are oriented around serving the client best, with offering quality products and services being more important than the quantity. In the SME segment, according to Visa’s SME Digital Onboarding study, the average time to digitally onboard an SME, for the top 22 CEE players, takes from a few hours up to days compared to 8 minutes at the top 10 global banks offering this service. However, best practices in digital onboarding such as focusing on UX, embracing a fully digital identity verification, eliminating technical issues, and providing immediate cards and accounts use might remedy these statistics for the CEE region.

The main revenue products for banks remain credit products such as loans and BNPL payment options. When choosing a loan, people in the CEE region look for fewer formalities when accessing a loan, loan accessibility via internet and mobile banking, and a branch nearby to visit in case things don’t go according to the plan. People in CEE regions are still fond of speaking to a person when interacting with their bank, and as a result, branches still drive sales in banking. Strictly focusing on the mobile personal loan, consumers appreciate paperless income verification, instant decision, and disbursement, plus remote contract signature. Overall, two years of forced digitalisation by COVID-19 pandemic have accelerated the development of new and better solutions that simplify banking transactions which previously required face-to-face interactions.

On top of that, there is an increased focus on ESG, environmental, social, and governance topics coming from the banks – these are starting to plant trees, launch cards made from recycled plastic, align with ESG mega trends (resource efficiency, electrification, access to finance, etc.), and focus on eco payment cards, eco shopping, and eco investments. For instance, Romanian bank Banca Transilvania already has in its portfolio environmentally friendly cards, made of recycled plastics and perishable elements.

Crypto and decentralised finance is becoming a popular topic among consumers in the CEE region. This is influenced by how crypto users see these developments - i.e., crypto is perceived as a means of storing value (31%), enabling savings (44%), and investment (31%); among the top three crypto benefits perceived we find security (41%), speed (38%), and anonymity (37%), and most wanted (appreciated) wallet features include crypto rewards (43%), crypto cashback (31%), and easy conversion to fiat (30%). Still, non-users have also expressed concerns around the security, volatility, and crypto acceptance, and shared as reasons not to buy crypto the lack of acquaintance with the terms/concepts (39%), the lack of need (25%), and the belief it is not very secure (25%).

Technology (cloud, AI, etc.), coupled with agile, plays an important role in helping banks transform their products and internal operations. Moreover, ‘speed is the keyword in innovation, and banks can’t always keep up with the speed of fintech. However, not having time or resources is never an excuse, if there is an outsourcing alternative’, Szymon Stacczak from Visa added. To build on this idea of speed and use of tech we were impressed to learn how the technical/engineering team from PrivatBank Ukraine managed to migrate to the cloud in only 6 weeks, immediately after the war started. The public was sitting on the edge of their seats while Razvan Tapu from PrivatBank Ukraine described how the bank, which has 20 million customers, managed to move 300 apps to the cloud in such a short period. Besides the technology supplier, a crucial role in this action was played by the human resources, the team, as ‘the guys were working 24 or 36 hours to make the migration, and we couldn’t do it without their strong commitment, discipline, and ownership’, Razvan added.

Another hot topic discussed at Unchain was CBDCs. Central bankers from Romania, Croatia, and Hungary were invited to present where they are with CBDCs in their countries. In Romania, the first retail CBDCs pilot, based on the Corda platform, was initiated in 2021; in terms of structure, it is a private decentralised network using a 2-tier model, with the National Bank of Romania (BNR) being the central authority. Despite the efforts conducted toward payment digitalisation, locally, the population is still keen on cash. In Croatia, there are no CBDC pilots, as the country plans to adopt the euro in 2023. Here the rate of payment digitalisation is high, with less than 10% of the population being unbanked.

Hungary’s central bank launched its first retail CBDC pilot project in September 2020 to support the digital financial inclusion of students. The pilot has developed a Digital Student Safe mobile application where students can set savings goals, exchange, and collect digital assets (digital medals, digital stamps) by answering quiz questions about finance, digitalisation, and environmental awareness. According to development plans, in the next phase (Digital Student Safe 2.0, available in the 2022-2023 school year) a more direct connection to real money is to be attained. Still, the Hungarian central bank cannot identify an urgent need for launching a generally accessible, fully-fledged retail CBDC due to the instant payment system which was successfully introduced for the banking sector in 2020.

Overall, the introduction of a central bank digital currency (CBDC) can support the achievement of several economic, policy, and social goals. Prevalent motivating factors among central banks are the promotion of financial inclusion and enabling faster and cheaper cross-border payments, which can become a reality if states collaborate and CBDCs payment rails interoperability is achieved. ‘We don’t work alone - we not only have partnerships with other banks and service providers, but we also use and share the know-how with our international counterparts, European banks, and players. We aim that Romanians worldwide can instantly access and transfer money as they want’, concluded Tudor-Tim Ionescu, Strategy Consultant at The National Bank of Romania.

In parallel with the main scene, there were also startup pitches and 1to1 mentoring sessions for fintech & blockchain startups looking for support and financing. After multiple pre-election rounds before the event, 24 startups from 15 countries pitched in front of the jury during the festival. Seven of them moved on to the final. First, there was Acounto, a Hungary-based fintech that aims to solve tax and accounting via automation using AI and Open Banking. Then there were BoneX, a crypto exchange from Bulgaria, INKI.TECH a B2B platform from Romania that manages devices, SLS Solutions, a Polish startup that gathers data to support the process of credit scoring, and Torus, a SaaS intelligence platform from Lithuania for banks to boost profits on cards transactions. Finally, there were Welthee from Romania that aims to empower people to create wealth (even in volatile markets) via a risk mitigation tool, and FilmChain, from Great Britain with Romanian founders, who is processing real-time payments for the film industry, along with the winning startup.

Unchain Fintech Festival startup pitches finalists

The financial industry in the CEE region has been under a lot of pressure and challenges for the past few years: relying less on cash (which is especially difficult for a region with many unbanked populations), switching to contactless payments, trying to create financial services that are more inclusive (to integrate more youths, seniors, people with disabilities), transitioning quickly to Open Banking, learning about new payment methods (BNPL, crypto, etc.). But the good news is that this industry has never been alone – fintechs and multiple software providers have adapted their pricing model and simplified their products to support the massive wave of payment digitalisation. And they have come to Oradea, to celebrate their success.

The first CEE fintech reunion at Oradea was the perfect place to network and find out about payments innovation in this region. The festival ended with a bang the moment the stage broke down when Unchain attendees took a group photo. Thank you, Unchain Fintech Festival, for having us and we look forward to experiencing the ‘Unchain effect’ next year.

‘The Unchain effect’

About Mirela Ciobanu

Mirela Ciobanu is Lead Editor Banking and Fintech at The Paypers and has been actively involved in drafting industry reports, carrying out interviews, and writing about innovation in payments and fintech. She is passionate about finding the latest news on AI, crypto, blockchain, DeFi, and she is an active advocate of the need to keep our online data/presence protected. Mirela has a bachelor’s degree in English language and holds a master’s degree in Marketing. She can be reached at mirelac@thepaypers.com or via LinkedIn.