Banking and fintech innovation in the CEE region

With the banking and fintech market in the CEE region growing significantly in recent years, The payers went to the Unchain Fintech Festival in Romania to find out why

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

Unchain Fintech Festival speakers offered insights into 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 the Oradea, Romania fortress – Unchain Fintech Festival tent

One of the strengths of Unchain, in addition to being housed in a Romanian medieval fortress, was that it shared perspectives on businesses and consumer behavior in the CEE region when it comes to the adoption of banking and payments. Szymon Staśczakhead of CEE Visa Consulting & Analytics presented key digital trends in the banking sector in CEE, and among these we found that there is one great interest in dedicated apps for children, with financial institutions trying to find revenue streams within this group. The background for this trend is based on children’s interest in buying their dream items, especially in the 7-10 year group, in online shopping (11-14 years), and in adopting cashless payments, savings and having spending autonomy.

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

Main income products for banks remain credit products like loans and BNPL payment options. When choosing a loan, people in the CEE region look for fewer formalities when accessing a loan, availability of loans via internet and mobile banking, and a nearby branch to visit in case things don’t go according to plan. People in CEE regions still like to speak to a person when interacting with their bank, and as a result, branches still drive sales in banking. With a strict focus on the personal mobile loan, consumers appreciate paperless income verification, instant decision and disbursement, plus remote contract signature. Overall, two years of digitalization forced by the COVID-19 pandemic has accelerated the development of new and better solutions that facilitate banking transactions that previously required face-to-face interactions.

On top of that, there is an increased focus on ESG, the environment, social and management themes coming from the banks – these are starting to plant trees, launch cards made from recycled plastic, adapt to ESG megatrends (resource efficiency, electrification, access to finance, etc.), and focus on environmentally friendly payment cards, environmentally friendly shopping and environmental investments. For example, the Romanian bank Banca Transilvania already has in its portfolio environmentally friendly cards, made from recycled plastic and perishable elements.

Crypto and decentralized finance are becoming a popular topic among consumers in the CEE region. This is influenced by how crypto users see this development – ​​i.e. that crypto is perceived as a means of storing value (31%), enabling savings (44%) and investment (31%). among the top three crypto advantages perceived we find security (41%), speed (38%) and anonymity (37%), and the most desired (valued) wallet features include crypto rewards (43%), crypto cashback (31%), and simple conversion to fiat (30%). Nevertheless, non-users have also expressed concerns about security, volatility and crypto acceptance, sharing as reasons for not buying crypto a lack of familiarity with the terms/concepts (39%), the lack of need (25%), and the belief that there is no is very certain (25%).

Technology (cloud, AI, etc.), combined with agile, plays an important role in helping banks transform their products and internal operations. Furthermore, Speed ​​is the key word in innovation, and banks cannot always keep up with the speed of fintech. But not having the time or resources is never an excuse, if there is an outsourcing option., Szymon Stacczak from Visa added. Building on this idea of ​​speed and use of technology, we were impressed to learn how the technical/engineering team from PrivatBank Ukraine was able to migrate to the cloud in just 6 weeks, immediately after the war started. The audience sat on the edge of their seats as they 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 time. Besides the technology provider, the human resources, the team, played a crucial role in this action “the guys worked 24 or 36 hours to complete 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 stand with CBDC in their countries. In Romania, the first retail CBDC pilot, based on the Corda platform, was launched in 2021; In terms of structure, it is a private decentralized network using a 2-tier model, with the National Bank of Romania (BNR) as the central authority. Despite efforts towards payment digitalisation, locally, the population is still preoccupied with cash. In Croatia, there are no CBDC pilots, as the country plans to adopt the euro in 2023. Here, the speed of payment digitization is high, with less than 10% of the population unbanked.

The Central Bank of Hungary launched its first retail CBDC pilot project in September 2020 to support 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 finances, digitization and environmental awareness. According to development plans, in the next phase (Digital Student Safe 2.0, available in the school year 2022-2023) a more direct link to real money will be achieved. However, the Hungarian Central Bank cannot identify an urgent need to launch a generally accessible, full-fledged retail CBDC due to the instant payment system introduced to the banking sector in 2020.

Overall, the introduction of a central bank digital currency (CBDC) can support the achievement of several economic, political and social goals. Widespread motivating factors among central banks are the promotion of financial inclusion and enabling faster and cheaper cross-border payments, which could become a reality if states cooperate and CBDC payment rail interoperability is achieved. “We do not work alone – we not only have partnerships with other banks and service providers, but we also use and share our knowledge with our international counterparts, European banks and players. We aim for Romanians all over the world to instantly access and transfer money as they wish.concluded Tudor-Tim IonescuStrategy consultant at National Bank of Romania.

Parallel to the main stage, there were also startup pitches and 1to1 mentoring sessions for fintech and blockchain startups looking for support and funding. After several pre-selection rounds before the event, 24 startups from 15 countries appeared before the jury during the festival. Seven of them advanced to the final. First it was Account, a Hungary-based fintech that aims to solve tax and accounting via automation using AI and Open Banking. So it was BoneXa crypto exchange from Bulgaria, INKI.TECH a B2B platform from Romania that manages devices, SLS solutionsa Polish startup that collects data to support the process of credit scoring, and Torus, a SaaS intelligence platform from Lithuania for banks to increase profits on card transactions. Finally it was Welthee from Romania which aims to empower people to create wealth (even in volatile markets) via a risk mitigation tool, and Film chainfrom the UK with Romanian founders, processing real-time payments for the film industry, along with the winning startup.

Unchain Fintech Festival pitches finalists

The financial industry in the CEE region has been under a lot of pressure and challenges in recent 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 young people, seniors, people with disabilities), rapid transition 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 several software providers have adapted their pricing model and simplified their products to support the massive wave of payment digitization. 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 payment innovation in this region. The festival ended with a bang the moment the stage collapsed as 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 editor-in-chief Banking and Fintech at The Paypers and has been actively involved in preparing industry reports, conducting interviews and writing about innovation in payments and fintech. Passionate about finding the latest news on AI, crypto, blockchain, DeFi, she is an active advocate for the need to keep our online data/presence protected. Mirela has a bachelor’s degree in English language and a master’s degree in marketing. She can be reached at [email protected] or via LinkedIn.