Hungarian fintechs push country’s digital payment transformation

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Despite the economic challenges posed by the ongoing COVID-19 pandemic, the fintech (financial technology) sector in Hungary has seen rapid and dynamic development over the last couple of years. In fact, the need for increased digital interaction with customers due to infection control protocols has driven fintech growth worldwide, and Hungary is no exception.

A snapshot of the current environment reveals 130 companies, both Hungarian and foreign owned, that have fintech at the center of their operations. Around a fifth of these businesses specialize in payment services, which is indicative of a shift away from a cash-based economy. Until as recently as 2018, Hungary lagged significantly behind the EU average for digital transactions.

Holding on to the cash

According to numerous studies conducted by the Hungarian National Bank (MNB), citizens of this country have been more reluctant to move away from cash payments than their EU neighbors. Unsurprisingly, there are several factors at play affecting how payments are made within a population. Transaction costs, access to services, consumer preferences, and the way that citizens receive payments all have a role.

In 2018 the MNB found that while 84% of EU citizens receive their income electronically, this number was only 71% in Hungary, with 21% getting all or most of their income in cash. Retailers were also slow to accept electronic payments, with 70% still not accepting cards in 2016. Between 2012 and 2017, the value of cash in circulation grew from HUF 2,670 billion to 5,040 billion.

This was reflected in how the Hungarian population preferred to pay for goods and services – the same 2018 study found that cash was still the favorite payment method for 46% of survey respondents. In the demographic groups of the under 30s and the over 60s, this preference was even stronger. Those with lower levels of household income and education also tended to favor cash, partly because these groups are more likely to receive their income in cash.

The fintech revolution

The rapid growth of the fintech industry in Hungary has several drivers, including a concerted effort by the MNB to promote and accelerate it. This includes the launch of the MNB Innovation Hub, a networking resource for those working or interested in the sector. The bank has also created a ‘regulatory sandbox’, designed to expedite the testing of innovations and regulatory solutions.

Additionally, the MNB has created a chat service for citizens who have queries regarding fintech, and issued guidelines for banks on digitalization. At the start of 2020 the Hungarian Fintech Association (MAFISZ) was established, with a goal of supporting and strengthening the sector from startups to mature enterprises. Several of the largest Hungarian banks have also gotten in on the action, creating incubation programs for fintech startups, including mentoring and funding. All these actions and more have led to a significantly improved environment in which home-grown fintech can thrive. Between 2015 and 2020, the number of people employed in fintech in Hungary doubled.

Fintech startups making waves in Hungary

The recent strengthening of support for fintech has assisted many startups towards success, including many that were founded years before the interventions previously mentioned came into play. In 2021 the Hungarian fintech company that received the most funding was Barion, a payment gateway provider for both customers and merchants which facilitates digital and card transactions. Founded in 2015, Barion has grown rapidly thanks to multiple international investors and today is at the forefront of Hungary’s domestic fintech sector. It is similar to a fast payment as Sofort in Germany, which is used for all kinds of transactions – from online casinos to large shopping items.

Barion is just one of the fintech companies featured in the publication HunFintech 20/20 from the Fintech Group, which showcases the most promising Hungarian fintech companies on their radar. Voted on by highly regarded members of the industry, including country directors for Mastercard and Microsoft, the publication is a good indicator of what’s hot in the sector. One of the selection criteria for inclusion is that the service offered has a cash-reducing effect.

SimplePay is another payments fintech enterprise founded in 2013. The company provides a number of integrated payment solutions including QR code and mobile payments, as well as specialized services such as parking payments and ticket booking services. Taking a more specialized approach is Rollet, providing contactless access and payment for public car parks around the country.

Besides digital payments, there are many small and medium sized enterprises offering innovative fintech services. Take for example Salarify, an app that allows employees to access a part of their salary before payday. The accessed funds are then automatically deducted from the next paycheck. These are just a few of the many promising young companies showcased in the report.

Fintech and the future

The Hungarian economy is currently undergoing a period of rapid growth, and fintech is central to the country’s business environment. As we have seen, the authorities are making significant efforts to promote and support the sector, and to great effect. According to the MAFISZ website, their members serve more than 2.5 million end users and assist in making their lives easier and more cost-effective.

Since most of the profit generated from MAFISZ members comes from business-to-business sales, the group also points out that most customers use these services within the framework of a traditional financial institution, thus reducing concerns over consumer protection. The digitization of payments and other financial services also contributes positively towards environmental protection, as fewer physical resources are needed.

Every effort is being made to ease the transition to a largely cash-free economy, and now that people have more services and better access it seems inevitable that Hungary will become more in line with its European neighbors. More recent surveys suggest that the proportion of those who prefer to always use cash has declined from 46% to 30%, much of which is undoubtedly due to an improvement in both local and foreign fintech services.

It will be some years until the citizens of Hungary are ready to give up cash, and many doubt the wisdom of such a move in any event. As the fintech sector continues to grow, international cooperation between Hungary and the biggest players in fintech – China and the US – will be imperative.