24 July 2024
For the fifth time, the Magyar Nemzeti Bank publishes its FinTech and Digitalisation Report on the global and Hungarian FinTech ecosystem, and on the current level of digitalisation in the Hungarian banking, insurance and, as a novelty, investment sectors. The domestic FinTech sector continued to expand, with more than 200 active FinTech companies currently operating in Hungary. The digital maturity of domestic banks continued to improve at an accelerated pace compared to last year. The digitalisation of financial services and the innovative technological solutions supporting it are growing steadily, and will be subject to comprehensive regulatory frameworks in the near future in the European Union, and consequently also in Hungary.
While the value of FinTech investments declined globally, interest in small cap investments and technology solutions remained strong. Digital payment and lending services remain the most promising segments of the FinTech sector, but the high inflation environment of recent years has had a significant impact on the spreading of certain FinTech business models. In 2023, cybersecurity challenges also increased: the number of fraud attempts and the volume of data and the funds thus obtained increased, with technological advances playing a crucial role, notably through artificial intelligence solutions. The openness of generation Z to digital finance solutions is significant; in fact, financial market participants should pay more attention to this age group.
The growth rate of FinTech companies appears to be slowing globally, but the number of innovative companies in Europe and in the US has continued to grow. The progress of the Hungarian FinTech ecosystem is uninterrupted: the number of companies operating in Hungary has doubled within six years, so the number of FinTech companies operating actively in Hungary has grown to 200. By company size, four-fifths of FinTech firms are micro and small enterprises, and their share is growing gradually and steadily. The number of businesses particularly increased in data analytics and business intelligence, as well as in the blockchain and virtual payments segments. The order of the top three services on the Hungarian FinTech scene has changed, with sectors that had been less active in the past converging.
2024 is a significant year for the regulation of the tech and FinTech sector in the European Union. Numerous ground-breaking legislative initiatives have recently been launched or are about to become applicable, setting the course for innovation-driven development. The development of the world's first comprehensive Artificial Intelligence (AI) regulatory framework deserves special attention, as it aims to harness the transformative power of AI in a responsible and safe manner. The legislative work focuses not only on the exploitation of the potentials of AI, but also there are special ongoing efforts to ensure that the EU framework provides uniform liability rules for the sources of potential damages caused by AI systems. The European Union's framework for the new, regulated crypto-asset market are applicable from this year on, with the MNB carrying out the supervisory authority tasks in Hungary. In addition, a review of the European payment legislation is in progress and a new framework for access to financial data is being developed, supporting the advancement of open banking and the move towards open finance, thus ensuring the access of EU citizens to modern financial services.
The digital maturity of Hungarian banks improved significantly compared to the previous year, but the banking sector as a whole remains at a medium level of digitalisation. There was also significant growth in the product, client and partner pillars, demonstrating that the digital transformation of domestic banks is broad-based. Among the solutions applied, selfie-based account opening via a mobile device is becoming increasingly popular. However, there is still room for improvement in the digitalisation of products and services. With that said, however, it should be stressed that the number of service outages due to incidents reported by banks has been steadily decreasing over the past three years.
The digitalisation level of domestic insurers has stagnated in the recent period, although some institutions have expanded the range of administrative functions available through digital channels. The emergence of innovative technologies may have a significant impact on the sector, but the foundations for this need to be established in the institutional culture. For the time being, only a limited number of institutions have introduced training on innovative subjects, or set up dedicated domains to prepare for the changes brought about by AI and other innovative technologies at institutional level.
The MNB's digitalisation survey covered the sector of investment services for the first time. Based on the findings of the survey, the digital maturity of domestic retail investment service providers stands at a medium level. The digital maturity of the sector shows the most progress in customer communication, while the digitalisation of internal processes is less advanced. The most popular form of communication with customers is through the mobile application. Digitalisation is a high priority for the sector at management level, but not all institutions have a digitalisation strategy as yet. Overall, there is significant room for improvement in the digitalisation of the institutions of the domestic investment services sector and for lagging institutions to catch up.
https://www.mnb.hu/en/publications/reports/fintech-and-digitalisation-report