From the Berlin Wall to neobanks

Fintech in Eastern Europe: a Different Landscape?

eastern europe neobanks

Rarely mentioned but rich with innovative startups and bright entrepreneurs, Eastern Europe has an interesting FinTech ecosystem. According to data, last year more than two-thirds of the people in Central and Eastern Europe used digital banking services showing the differences in digital banking penetration between Western European markets and CEE are melting significantly in the past years, a process which is accompanied also by the development of more and more fintech solutions in Eastern Europe that also attract more investors’ interest. 

Notable investments were made in companies such as SME Finance in Lithuania (19.8 million euros), Software Group in Bulgaria (17.8 million euros), and Twisto in the Czech Republic (14 million euros) – not uncommonly by local VC funds, e.g. Speedinvest from Austria, Startup Wiseguys from the Baltics, Eleven Ventures from Bulgaria and ENERN from the Czech Republic. In short, thanks to massive efforts in the field of digitalization, Central and Eastern European markets are attractive for fintechs as well as for partnerships between fintechs and banks established in the region. 

Are Baltic Countries the New Silicon Valley?

The Baltic states of Estonia, Latvia, and Lithuania are three world leaders in financial technology. According to the World Economic Forum report Europe’s Hidden Entrepreneurs, Estonia is Europe’s number one hotspot for technology entrepreneurs, with Latvia and Lithuania following as third and seventh respectively. Technological development, including fintech, sits at the heart of economic progress in these small countries around the Baltic Sea in north-eastern Europe. For a trio of small countries that only joined the EU in 2004, having emerged from the shadow of the Soviet bloc, this is an impressive achievement.

Not a surprise. Estonia already showed its hi-tech vocation by the emergence of Skype, now a household name the world over. The country is also home to hundreds of less well-known fintech startups such as Bondora, Creditstar Group, Fitek, and Iuvo. Lithuania meanwhile has promoted its payments infrastructure and a supportive regulatory environment to lure global entrepreneurs, not only from Europe but also from Israel and Singapore. As many as 35 fintech companies were set up in Lithuania in 2017, tripling the size of the sector, which employs nearly 2,000 people. The regulatory sandbox allows companies to test financial innovations in a live environment for up to six months under the supervision of the central bank. During this time, participants are subject to simplified regulations and supervisory requirements. If the services work well in the test environment, companies are permitted to start operating in normal conditions. Riga, Vilnius, and Tallinn are all now thriving fintech hubs – it’s not unreasonable to suggest that they are now beginning to rival London and Berlin as silicon cities in the Central and Eastern Europe region. As a result, the region has an exceptionally strong talent pool, and top fintechs are able to recruit top professionals.

In Romania and Bulgaria, Smile and Pay

With a quickly growing financial services market, Sofia is rising as Fintech hub in Eastern Europe. International investors have noticed Sofia’s unique capability to combine tech specialists and an entrepreneurial mind. In 2012, the European Investment Fund brought 21 million Euros to the Bulgarian capital, giving perspective to many newly developed startups among which were Fintechs as well. And it is incredible how the country  already jumped into the new era of digital payment by facial recognition.

Recently, Bulgaria's main bank Raiffeisenbank partnered with the Romanian fintech company PayByFace to test facial recognition payment. The company, launched in 2019 by Romanian entrepreneur Mihai Draghic, built a payment system that doesn’t use a card and doesn’t require clients to do anything but show their faces. How does it work? You need your phone only to register. First comes the download of the mobile app and creation of a profile. Step two consists of adding a preferred payment card and registering selfies in the app. A PIN code is optional for extra security. And finally, you can leave your wallet at home and go shopping at any outlet that is part of the network of merchant partners. The PayByFace solution for making purchases with a selfie is already available in more than 100 locations in Romania and this innovative payment solution has recently been tested in Bulgaria in collaboration with Raiffeisenbank in Bulgaria.

Not a surprise. In the last couple of years, Bulgaria is investing money and talents expanding its own fintech capacity. Seeing the continuous growth in the Fintech industry in Sofia, the Bulgarian government has begun openly supporting founders and investors, with a goal to bring more capital into the city. One of the greatest attraction factors remains the talent: Bulgaria’s younger population is widely known for their IT and Data capabilities, bringing innovation and expertise into the newly formed startups. Although Sofia has a rocky historical background, the capital has become a center for Eastern European thought and development.

FinTech Hubs In Central Europe

Settled in the heart of Europe, Slovakia's fintech ecosystem is a special market, due to a variety of reasons. First, the whole fintech sector is enjoying Slovakian institution support. For example, the National Bank of Slovakia (NBS) has launched an Innovation Hub, as a platform on which fintechs (Slovak and international) can have direct conversations with the local regulator about different use cases. Some of the required licenses can be transported across the EU, making Slovakia very attractive for investors. Since the programme was launched in spring 2019 about 55 project teams have held discussions with the regulator.

Bratislava is also home to the country’s first FinTech Hub, a reality designed to support innovation within the CEE region. It demonstrates the serious intention to make Slovakia the next global leader in financial technology. The hub was opened with the aim to follow the inspiration of other fintech giants such as the UK, Singapore, or China. “We wanted to choose the best of similarly functioning platforms and combine it under one roof. We build our approach mainly on openness and accessibility," says Juraj Králik, executive director of FinTech Hub Slovakia and Head of the Slovak FinTech Association.

The Hub is open to any type of company whenever it's a start-up, scale-up, or well-established company. To get accepted, the Hub is looking for the uniqueness of the product, concept, or prototype as well as the success and suitability of the product for the region. One of the most interesting and sought-after benefits of the Hub is Slovakia itself. "We are members of the European Union and the North Atlantic Alliance. We belong to the Schengen area and, last but not least, we have the Euro, which is a great advantage over other local Visegrad Four players. The proximity of Vienna is also a great benefit in terms of arrivals and departures. And last but not least, Slovakia has a large number of talented people needed for companies to grow further from here", concludes Matej Ftáčnik, CXO of Vacuumlabs.