21 April 2020
The Magyar Nemzeti Bank has released a new and innovative report on the FinTech ecosystem and the results of the digitalisation survey conducted in the domestic banking sector. The annual FinTech and Digitalisation Report provides an overview of major developments in the areas of FinTech and digitalisation in the global and Hungarian financial sectors. Building on the findings and the conclusions drawn, the MNB is planning to take further steps to speed up the digital transformation process at domestic financial institutions.
The MNB’s FinTech and Digitalisation Report seeks to provide insight into recent domestic and international developments in financial innovation, digitalisation and their underlying technologies, which are becoming increasingly dominant in the Hungarian financial markets. The Report focuses on three main areas. First, we present a short overview of the most recent international developments in the global FinTech scene. Thereafter, we provide the first comprehensive analysis of the domestic FinTech sector based on publicly available data. And finally, we summarise the findings of our digitalisation survey conducted in the domestic banking sector.
At the international level, the FinTech sector has grown strongly in terms of its user base, the provision of products and services, its ability to attract capital, and market valuation. This has been supported by specific supply, demand and technological factors. All this has inevitably led to new regulatory responses; however, there is currently no clearly dominant international direction in the regulatory approaches. The MNB was among the first authorities in the region to establish an Innovation Hub and Regulatory Sandbox framework, which provides a good opportunity to identify the limits of current regulations and to test financial innovations. The enquiries received by these highlight new areas requiring regulatory attention.
The domestic FinTech sector has shown dynamic growth in recent years, which has been reflected in an increase in the number of employees and revenue, in addition to rises in the number of customers. In Hungary, the vast majority of FinTech firms provide B2B (business to business) services, with B2C (business to consumer) companies accounting for less than 10 percent. However, a large part of technological development ultimately results in improved competitiveness and quality regarding the provision of financial services to retail and corporate customers. The major areas of activity are data analysis and business intelligence, financial software development and system integration, as well as payment services. Currently, about 60 percent of participants are active in these areas.
The results of a comprehensive banking system digitalisation survey conducted by the MNB show that the digitalisation of domestic incumbents has already begun, and the banks surveyed are aware of the possibilities and the importance of digitalisation. However, there is still considerable room for improvement in terms of their digitalisation level and preparedness. For senior management teams at banks, utilising the possibilities offered by digitalisation as efficiently as possible is a clear priority over the medium to long term. In addition, increasing emphasis is placed on digitalising workflows and ensuring work competences and circumstances that meet the requirements of the digital age.
The survey conducted by the MNB also sought information about the possibilities of remote working at domestic banks. It is a forward-looking approach that virtually every Hungarian bank offers remote working options for their employees, using the appropriate digital infrastructure. This is particularly important in the current epidemiological situation both in order to limit the spread of the disease and to maintain the proper functioning of the banking sector. That said, products need significant improvements to extend full online access, and it is still possible to make further progress in both human resources and at the system level to enhance the competitiveness and efficiency of the domestic banking system.
The fact that digitalisation can play a crucial role in managing the current difficult period both in terms of human health and the economy lends special relevance to the publication of the Report. The continuous and resilient functioning of the financial system is a top priority in order to enable it to support economic growth now and after the threats recede. In the current situation, the rapid transition of financial market participants to increasingly digital operations could be a real solution to mitigate adverse effects, moreover, it could become a competitive advantage in the future. To pursue the afore-mentioned objectives it is indispensable to strengthen the digitalisation level of the domestic banking sector, to which the MNB intends to provide active support.