Not all indicators point to stellar growth in the regional fintech landscape in Central and Eastern Europe (CEE) any longer. One might even think that the fintech boom in the CEE region has peaked.

According to figures from Raiffeisen Bank International's (RBI) CEE Fintech Atlas, the number of active local fintechs in the CEE region remained almost constant from 2018 to 2019.

In the CEE region (excluding Turkey) we identify close to 650 active local fintechs (with Turkey more than 700). But the number of active fintechs is not everything. There were also important growth areas in the CEE fintech space in CEE. And you can’t forget the more interesting country differences.

The new CEE RBI Fintech Atlas also answers other important questions: What are the leading fintechs destinations in the region? How did funding levels develop in 2019? In which CEE markets are fintech ecosystems already flourishing in terms of number of fintechs operating or funding and where there are potential “hidden champions”.

The same top dogs continue to dominate the CEE fintech market. The majority of the local fintechs continue to operate on the Russian and Polish markets, with an aggregated share of almost 50% of all locally active fintechs in CEE (30% in Russia, 20% in Poland). However, the percentage here has slightly decreased in 2019 from 56% in 2018, so that other CEE markets have caught up in 2019 and the number of fintech companies has increased there.

Relatively significant increases in the number of active fintechs can be observed in Bulgaria, Hungary and Ukraine. These are positive developments and reflect the development of increasingly vibrating local fintech scenes – away from the internationally recognised local CEE fintech hotspots. Moreover, smaller CEE fintech markets are increasingly seeing the foundation of related fintech associations and incubations programmes.

On a positive note, funding figures show that 2019 recorded a new peak in the level of fintech investment in many CEE markets. Compared to 2018, the markets in Lithuania, Bulgaria, Hungary, Romania, Slovakia and Ukraine showed a strong growth in investment.

There is also a trend towards increased investment in fintechs by local and regional VC funds, as exemplified by Speedinvest from Austria, Startup Wiseguys from the Baltics, Eleven Ventures from Bulgaria, ENERN from the Czech Republic, Hiventures from Hungary, Speedup Group from Poland, Gapminder from Romania and Revo Capital from Turkey. In terms of aggregated fintech funding (2008-2019) the Bulgarian market is particular interesting (representing around 8% of regional fintech investments), outpacing other markets such as Czechia and Hungary.

The leading fintech markets of Poland and Russia did not manage to print new peaks in terms of fintech investments in 2019. But commercially, not too much negative sentiment is indicated here either. Over 75% of the accumulated regional fintech financing (2008-2019) by investors is still concentrated in the Polish and Russian markets. This speaks for the maturity of the respective fintech scenes there and is also related to the fact that over 60% of the digitally active population in CEE is concentrated in Poland and Russia. However, it is also clear that the other growing and smaller CEE fintech markets may well be interesting for early-stage investors.

The RBI CEE Fintech Atlas also clearly shows that the innovative power in CEE is very high. A country such as Estonia has twice as many locally active fintechs than a country like Austria. The fintechs located there have been provided with financing that is three times higher than for fintechs in Austria. It is therefore a clear objective of the study by RBI to bring together fintechs from CEE with investors and banks from Western Europe or to whet the appetite of Western European investors for the CEE region.

On top of analysing the regional fintech dynamics it is equally important to get a grip on the size of the (potential) customer base of digitally active and sophisticated customers in the CEE region.

More than 65% of the population in the CEE markets is expected to be using digital banking services by the end of 2020, an increase from some 50% some 2-3 years ago. That said, the digitally active customer base in the region may reach the 200mn mark as of 2020. As there is room to increase the digital penetration in the region by some additional 5pp per annum, we expect strong growth in the digital banking space in the years ahead.

Still, a large chunk of the digitally sophisticated customer base is sitting in a few markets – as shown earlier. Therefore it remains key that local fintechs and regional CEE banks remain open to implement scalable solutions together across several markets – due to the small size of many CEE markets. With the possible exception of Ukraine, the number of digitally active customers in all other CEE markets remains below 10mn, in seven markets even below the 5mn level. However, Western banks are sitting on relatively high market shares of 60-80% in some of those smaller markets, which makes them attractive partners for local and/or international fintechs. Moreover, it is not only the outlined market conditions in many CEE countries that suggest partnerships between banks and fintechs. The coronacrisis has resulted in the resurgence in importance of lending products – still the domain of banks – while it has also removed hurdles with which banks and large corporations traditionally encounter digital approaches.

We currently see a digital catch-up running at full speed due to very specific crisis circumstances. Customer behaviour is radically changing: the willingness of customers to only engage digitally has increased radically, while large parts of the economy have been brought online. Therefore the number of digitally active customers in the CEE region may continue to rise by 5 percentage points in the years ahead, and top 80% in a few years' time, pushing the number of digitally active customers to a level of roughly 250mn.

 

The RBI CEE Fintech atlas is here or can be downloaded free of charge at www.fintechatlas.com.