What are Romania’s chances to have a booming fintech scene? 2 undeniable truths
It’s no secret that Central and Western European countries are embracing innovation in financial services and are racing to be the ones leading the fintech revolution. And some of them have already managed to secure their title as “world’s fintech hubs” by disrupting mainstream banking and payments services.
But what about the rest of Europe, have Eastern European countries jumped the fintech bandwagon? Let’s take Romania, for instance, a country that not long ago was “tortured” not only by communism, but also by a democracy that came too fast for some politicians that never understood it or knew how to use it to leverage the state’s full potential.
In Romania, the fintech industry is at a nascent stage, even though there have been several success stories and a lot of new and innovative initiatives. Furthermore, according to statistics portal Statista.com, the total transaction value on the fintech market reached USD 3.799.8 million in 2016 and is expected to jump to USD 7.825 million by 2020. Doesn’t seem like a lot comparing to the amounts we’re talking when it comes to London, Amsterdam or Berlin, but for Romania, this is a clear sign that it is moving in the right direction and the tech scene is growing steadily.
And with large companies such as Amazon, Microsoft, Intel, Google or Oracle attracting and hiring a large portion of the talent available and new international players entering the field, Romania’s market and its potential are not to be ignored. According to a report conducted by Deloitte* in the fintech sector for Central and Eastern European countries, Romania ranked 37th in the global “Doing Business” Index 2016 (with improvement noted in the areas of paying taxes, enforcing contracts and resolving insolvencies).
Technical talent is another strong advantage and a starting point for new and disruptive fintech start-ups. Research shows there are currently over 7000 computer scientists graduating annually from the Romanian universities. Most of them are English speakers and have ranked very high at international math, science or engineering Olympiads during their school years. Also, a large number of IT specialists work in Shared Services Centres across the country.
Yet, Romania is still quite far from being able to even try to outrank the rest of the well-developed European countries when it comes to fintech. Why is that?
Legislation, regulation and bureaucracy
Although the Romanian government actively supports domestic companies and foreign investors (through state aid schemes, tax incentives, deductions for R&D investments and low CI), frequent changes in national legislation and the need to keep up with regulatory requirements are increasing the bureaucratic burden placed on potential investors.
Add that to an unstable political scene and you can understand why things tend to move so slowly even though the country has a great potential for development and highly qualified workforce. Additionally, corruption continues to be an issue, although, luckily, corrective actions seem to have a positive effect.
Cash is still king & people still lack trust in online banking
The Romanian payments landscape is still dominated by cash as consumers need to build their trust in cards and online payments. Results of the Deloitte research indicate this is expected to change in the years to come as a result of societal changes and government anti-corruption initiatives. Further development of the e-commerce sector will also have a significant impact on determining the population to become more ‘online-based’. In the future, mobile payments are likely to shift towards smartphone-based rather than telecoms-based solutions (such as M-Pesa), especially in urban areas.
When it comes to the banking system, it is clear there is a strong desire for future developments and innovations, as well as a shift from regulatory changes to customer centricity and user experience. However, we need to take into account that Romanian citizens may be a bit slow in adopting new technologies until they start to trust digital banking channels.
All that being said, I feel that Romania’s potential and strengths are somehow seen as second-class citizens due to the pressing issues the country needs to solve before being able to invest and receive investment in the fintech market. Hopefully, in the next decade, Romania will be able to match forces with countries such as France, Belgium or Denmark, to name a few.
*The report was commissioned by the UK Department of International Trade and includes Austria, Bulgaria, Croatia, the Czech Republic, Hungary, Romania, Slovakia and Slovenia.