Magyar Nemzeti Bank (MNB), the reserve bank of Hungary, has released its very first Fintech and Digitalization Report, which looks into the state of financial technology adoption and the level of digitalization across the nation’s banking ecosystem.
The report revealed that there are at least 110 local Fintech firms based in Hungary, as of last year. Out of these firms, those which are owned by Hungary’s residents are mostly micro and small businesses, 66% of which managed to become profitable back in 2018.
The report confirmed that there are not many new Fintech firms operating in the European country. The majority of financial services companies mentioned in the report were founded in 2015 or earlier.
The relatively slow growth and development of the country’s Fintech industry may be attributed to several factors. For instance, four out of five, or 80%, of transactions in Hungary during 2018 were settled with cash payments. Although cash transactions have declined by 5% in the past three years, the country’s consumers are still not using digital payment methods as much as other nations.
The reserve bank claims that it attempted to address this issue by introducing an instant funds transfer service. The institution said that during the first two weeks of its launch, the money transfer platform handled over 5.3 million transactions.
The bank’s Fintech report noted:
“The introduction of this system can fundamentally change domestic payment behaviour as the uses of instant payment are much broader than intraday transfer, thus providing an electronic alternative for many payment situations which could previously only be solved with cash payment.”
The report went on to mention that the number of Fintech platforms integrated into traditional banks’ systems is still quite low.
There are reportedly only four Hungarian Fintech firms that have been awarded an Account Information Service Provider (AISP) license, which allows external parties to gain access to users’ financial data (after obtaining their consent).
Only one of the AISP license holders has introduced their Open Banking service, the report revealed.
It set up a digitalization scale between 1-100 for banking institutions, and determined that they ranked “51” on average.
It added:
“Fully online services are presently only available in the fields of account opening and personal loans.”
Around 65% of current accounts may be opened online across the nation’s banking sector, and only 10% of clients with outstanding personal or housing loans get information from banks regarding the status of their loans through digital platforms.
As mentioned in the report, the lack of digitalization in Hungary’s banking industry is mainly due to regulatory restrictions or limitations and a relatively low level of “digital maturity.”
While the reserve bank has attempted to address this issue, by providing an instant payments platform, it argues that there’s currently “no clearly dominant direction” for financial regulations as they pertain to Fintech businesses, which may have prevented the country from making substantial progress with its digital transformation efforts.