Triggers and obstacles to the development of the fintech sector in Poland

Based on research conducted by Deloitte in December 2016, the European fintech market had a value of €2.2 billion, of which approximately €860 million was contributed by Poland. Today, Warsaw is not just home to almost 45% of start-ups in the country, but it is also considered a fintech hub in the region.

Being the largest market in Central and Eastern Europe, according to Statista data, the Polish fintech industry is evidently shining in the banking, payments and insurance industries. Several factors have an influence on the development of the fintech sector in any country. In Poland, these factors include innovation in mobile technology and the availability of infrastructure for cashless payments. Let’s take a closer look at how these factors are shaping the development of the Polish banking and payment sector in particular.

The Polish fintech industry is evidently shining in the banking, payments and insurance industries.

Banking in Poland

Fintech offers its services to the banking sector in the form of development in the existing products, business models, applications, and payment platforms. Keeping this under consideration, let’s focus on a few statistics. Over the last few years, Poland accumulated the sixth-largest banking population in Europe and also has the second-highest number of banks in the region. Five leading banks alone accounted for nearly 50% of banking sector assets in the country, and by the end of 2019, the total value of banking sector assets increased to over PLN 2 trillion ($516 billion).

Additionally, an emerging trend was observed in the number of online banking clients and the use of mobile phones. Based on the findings by ING International Survey, Poland was able to secure the third-highest score in mobile banking usage, where 60% of the total smartphone users already had an experience with mobile banking. This indicates that technological innovation in the mobile banking industry in particular has substantial potential for growth in the next few years. However, this gap is left empty as 38% of established Polish retail banks do not offer their products and services even today, neither through mobile channels nor through mobile apps or websites.

Key Challenges

European Financial Congress (EFC) experts have identified two major factors that are crippling the stability of the domestic banking sector:

1. Nationalisation in the banking Sector: This process has led to excessive engagement of the State treasury in the banking sector, which is likely to result in funds being allocated inefficiently due to decisions being made based on political factors
2. Excessive regulatory burdens: One of these burdens is the Polish banking tax which, according to EFC experts, is violating the European Union’s rules on competition as it is not levied universally but instead charged on the assets of particular types of financial institutions in the country

In order to keep pace with the shifting customer behaviour from traditional to online banking, banks are trying to keep up with advancements in digital innovation by offering virtual features to their products and services. One example is that of mBank in Poland, which introduced a fully branchless model and made their services available through their website and native mobile application. By the end of 2019, around 37.4 million polish clients were able to gain access to online banking services. According to the European Bank Federation (EBF), a rise of 15.2% was also reported in the number of active users of online banking applications, as compared to the previous year. The EBF also stated that the share of non-cash transactions increased significantly despite the pandemic.

Additionally, to overcome the problem of over-regulation and increasing participation of the government, many Polish start-ups, like Billion, for example, have launched their e-currencies based on Blockchain technology and are benefiting from features like distributed ledgers and immutability.

The Polish payment sector

A survey on the Polish fintech industry conducted by Flanders Investment and Trade proved that by 2020, cash payments were continuing to decline. Up from 34% in 2011 to 80% by 2017, the cash payment sector was said to be declining due to the wide acceptance of payment cards. In support of these findings, another study conducted in 2020 on the fintech market in Poland reported that approximately 40 million Poles were in possession of plastic cards by the end of the year 2018, with 79% of them often using debit cards to make payments. Given these facts, it is safe to say that cashless transactions are outstripping cash transactions.

Key Challenges

In 2020, the KNF (Komisja Nadzoru Finansowego, also known as Polish Financial Supervision Authority) was able to identify that 24% of the regulatory barriers fell in the following categories:

1. Data processing
2. Payment services
3. Banking
4. Capital sector
5. Anti-Money Laundering (AML) compliance
6. Lending
7. Insurance

Obstacles within these categories include over regulations, lack of proper supervision of know your customer (KYC) and AML compliance, unavailability of trained staff members, length of the procedures, issues related to digital identity, etc.

Overcoming the barriers

Many organisations operating in the fintech industry were facing complicated regulatory and legal barriers. In order to overcome these hurdles, the KNF launched the Innovation Hub Programme in 2018, which continues to provide support to the fintech sector by enabling dialogue with institutions like banks and start-ups. Among the topics that were addressed and resolved through this communication channel were issues regarding payment services, virtual currencies, cryptocurrency exchanges, and crowdfunding.

Credit: Nancy Rean