As in the EU: Should the Ukrainian financial market follow the European experience?

For Ukraine, open banking is another step towards European standards and, at the same time, one of the conditions for European integration.

In Europe, financial companies and neo-banks long ago won a part of the customer market, creating worthy competition for classic banks. In 2022 alone, the volume of the global financial technology market amounted to 194.1 billion US dollars, and by 2028 it is predicted to grow to 492.8 billion US dollars. Customers choose fintech due to ease of onboarding, and simple UX, and banks invest in their such projects. Will Ukraine go down this path, and who will ultimately win if so?

How fintech developed in Europe

The digital transition of Europe in the area of finance has long been talked about and recognised as a priority area for investment.

Since March 2018, European government and businesses have promoted fintech development. In the spring of 2020, everything started to work at the legislative level—the EU approved the strategy of digital finance and the strategy of retail payments.

This did not remain a paper declaration, because powerful financial companies in Europe began to offer clients a greater choice of services and the convenience of the service. Competition between fintechs and banks is already helping to modernise the financial system. The European fintech sector quickly emerged from the periphery of Europe’s financial landscape. Each of the seven largest European economies by GDP—France, Germany, Italy, the Netherlands, Spain, Switzerland, and the United Kingdom—now has at least one fintech company in the top five banking institutions by market value.

And fintech brands—Revolut, Monzo, N26—have become an example of customer service, and not only in banking.

All this had advantages for customers, the financial system, and the economy in general. Consumers received fast and high-quality services at lower costs. For example, international transfers in fintech are much cheaper and instant compared to classic banks.

For the financial sector, fintech has become a catalyst for innovation and growth. Thanks to competition, new products began to appear on the market faster. For the general economy, fintech has become an important source of growth—in Europe, almost 150,000 specialists are currently working in this field, which means that there are profits, taxes, and the movement of funds as such.

Implementation in Ukraine

I will not surprise anyone by stating that Ukrainian financial services (actually, like services in general) are of a very high quality. The development of the country’s card infrastructure began in the 2000s. At first, we covered the country with POS terminals and ATMs, then there were European-level innovations—for example, SMS banking.

In 2010, fintech focused on convenience and service: better internet banking, convenient e-commerce purchases, and utility payment aggregators. As a result, Ukraine became a world leader in the implementation of Apple Pay and Google Pay. And even before the full-scale invasion, Ukrainian fintech proved that it is part of the global market.

From August 1, 2022, the implementation of the law on payment services began in Ukraine, which will adapt Ukrainian legislation to the legal field of the EU and will make it possible to integrate the payment system of Ukraine with the EU system.

The purpose of the law is to regulate the activities of payment institutions and provide more opportunities to non-bank financial companies. Since May last year, they, like banks, can open accounts for private customers and businesses and issue payment cards. Thus, a wide path opens up for financial companies—they may well compete with banks in payments, digital lending, and, of course, simple access to digital finance, as an example—NovaPay, which was the first on the market to receive an extended license from the National Bank of Ukraine and presented its non-banking financial application.

I believe that the changes in the legislation have already had a positive impact on the market. After all, players who received a license meet the new standards. Accordingly, the quality of their services is already high and is likely to improve. Many are talking about competition between fintechs and banks. But, in my opinion, this is more a story about options for partnership, and if it is about competition, then only about the one that benefits consumers — both private and business.

What does all this mean for Ukraine and its financial sector?

All the benefits from the reformatting of the financial market will go not to specific market participants, but to the client, who will have a choice between fast, easy, and reliable financial services. And all this is “in one bottle”.

The business will receive cheaper internet acquisition. The reduced tariff is an incentive for small entrepreneurs who are not ready to pay commission now, to start using cashless payments and do it transparently. And this means that the country’s economy will receive new revenues. Private clients will have more attractive tariffs for payments and transfers and more opportunities to access financial services. Because with such a development of events, new world-class fintech players will come to the Ukrainian market—after all, the legal and infrastructural field for this will be prepared by local players. And the client benefits from all this, again.

This, most likely, will lead to the emergence of innovative products and accelerate Ukraine’s transition to open banking. Open banking is the ability to access all your accounts opened in different financial institutions through a single window. In European countries, open banking is already working, for Ukraine, it is another step towards European standards and, at the same time, one of the conditions for European integration, as well as integration into the SEPA payment system. By the way, there is not much time—we have to do it by 2025.

So, when I hear that the Ukrainian financial market does not need new players because there are already more than six dozen active banks, I remind you that the client should “vote” for this, choosing a financial institution for his or her goals.

And also—that the total value of financial technologies in Europe is almost 430 billion euros. This is more than the combined market capitalisation of Europe’s seven largest listed banks as of June 2022.

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