Visegrad Insight Podcast
8 April 2021
The future holds more global and hopefully cheaper fintech products, but it will require better regulation on both local and international levels.
Financial technology used to imply large banking enterprises cooperating with other sizable entities, and it was a rather stable field which lacked a bit of dynamism.
Back then, for a country to be a player on the market they needed to be well-established, have a considerably-sized economy or an abundance of natural resources which allowed them to push for technological advances.
Today, that is hardly the case as is noticeable in Central Europe with many smaller, more agile enterprises offering diversified and niche products, changing the landscape with their innovations. The question is if these companies will be able to expand their services to clients further afield.
In other parts of the world, fintech tools have been more readily available over the past several decades. Take for consideration the companies working in Africa like M-PESA, Jumo and Tala, which offered financial solutions which were not obtainable on the market, and thus were quickly adopted by the public at large.
Now, one of the reasons the African market was more amenable to fintech start-ups was that there are stricter regulations that European companies must comply with, and therefore there are delays in their products coming to the market.
Another reason could be that those areas – where market penetration was easier for smaller firms to achieve – the products they were offering were in greater, more pressing need, so their launching was accelerated.
Obviously, there are numerous regulations which exist in the EU, but these challenges could be offset, in theory, by the size and potential of the internal market. While the sale of goods and services are available for anyone in the EU, the reality was that each individual nation had their own legislation regarding financial concerns, and thus, a product developed for Croatia might not be easily rolled out into Hungary or Poland as the concept of the single market implies.
However, this has been changing recently, and the EU Commission’s on-going digital package has been addressing many of these issues and will continue to adapt to future needs.
Nevertheless, the changes already implemented have allowed for payment services to successfully scale-up and offer their services to their neighbouring and regional countries. In areas like technological solutions or cryptocurrencies, there has been an explosion of new enterprises offering clients an array of services, but the going is never easy.
The creation of a common financial market would go a long way in abating many of the challenges fintech companies are contending with today. The question will be if the individual nations of Europe would like to more deeply integrate their markets with one another.
If they do, then this will offer a springboard for such initiates to grow at least to the size of the EU market before attempting to expand more globally.
On this point, there are not that many global players in fintech because each market does require specialisation, and as mentioned above, these regions or countries will have some tailor-made or home-based solutions from companies established more locally, and will, therefore, be more trusted by local governments.
Many Chinese companies have been pushing for years to try and enter the markets of the west with their fintech solutions. But this does involve difficult administrative problems and security issues like regulating the internet and defining human rights such as privacy and inference from the state. It is perfectly plausible that a company offering fintech products could gather information on their clients or store their data in ways which could be used against them in the future.
Solutions to these problems could be an international agreement on privacy and sanctity of personal data, but even this would not assure many in different countries that these rules would be abided by.
One recent trend has been the buying out of local fintech firms by larger corporations, and in this way getting around some of the issues mentioned above. Yet, it is too early to tell if these conglomerates will be able to abide by local rules and regulations.
If you have, for instance, a company that has a general rule of privacy it might still run afoul of local legislation in various municipalities, and thus the problem continues and opens them up for litigation.
Moreover, these fintech conglomerates could be accused of unfair competition such as the recent analogy with Facebook buying Instagram and WhatsApp has shown in the states.
Nevertheless, the future will probably hold more global and hopefully cheaper fintech products, but it will require better regulation on both local and international levels to achieve a level of security demanded by the public.
This is a summary of a discussion with Alex Ivančo (Department Director, Ministry of Finance of the Czech Republic) at the New Europe 100 Forum 2.0 on 10-11 December 2020, edited by Galan Dall, Editor-at-Large of Visegrad Insight. Find out more about the New Europe 100 network here. For updates, follow us on Facebook, Twitter and LinkedIn.
The interview is part of a project supported by the International Visegrad Fund.
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