We're in the focus of Fintech Futures: Is Southeast Europe fertile ground for digital banking challengers

Our CEO Petr Baron was invited by Fintech Futures to share inisights about how we built a regional challenger bank and how we’re challenging the Bulgarian market with our one-of-a-kind mobile app and neon card:

Neobanks have taken Europe by storm, with the likes of Revolut, Monzo, and N26 becoming household names. And while markets like the UK have become crowded for new challengers, another part of Europe remains relatively free of competition. As a region where cash is still king and with millions of underbanked customers, Southeast Europe appears to be fertile ground for new-age digital banks.

A challenge or an opportunity?

Last year, the European Savings and Retail Banking Group (ESBG) conducted an analysis of the Global Findex Database 2021, and discovered that more than 13 million adults, or 4% of the adult EU population, remain underserved.

The divide was noticeably stark between Western and Eastern Europe, with countries such as Romania and Bulgaria having some of the highest financial exclusion rates, as opposed to Denmark, Germany, and Austria, which reported barely any unbanked citizens.

“In comparison to Western Europe, or the average EU, Southeastern Europe still has a relatively underbanked population,” remarks Adam Niewinski, co-founder and general partner of OTB Ventures, a venture capital firm originating from Central and Eastern Europe.

“This is changing for the better. However, it is safe to say that it is still underbanked.”

Reasons for this could be plenty. While high interchange fees can be seen as one, consumer attitudes to financial services play a pivotal role in the ultimately slow uptake of technological advances in finance. A strong preference for cash and wariness towards debt are other factors.

According to an OECD report from 2020, more than half the respondents from the Southeast Europe region had their savings in the form of cash stored at home. On average, just over 20% had their savings in a bank account.

“The challenge lies in those customers who are more senior, and in more rural areas, so it’s not typically a client for the most innovative neobanks,” Niewinski says. “That’s also why it’s a bit of a challenge to address this market.”

Local versus foreign

In response, local firms have stepped up their efforts to tap into this market and give customers a more personalised and accessible digital banking experience.

tbi bank is one such challenger that has been silently carving out a space for itself in the market. Part of the 4Finance Group, tbi bank started out in 2012 by buying a small bank in Bulgaria and exiting all its other markets.

It was mainly focused on its consumer finance business until 2016, after which it decided to adopt a new strategy.

“We really saw an opportunity to build a challenger bank,” says Petr Baron, CEO of tbi.

tbi bank mapped out a dual-pronged approach, with a focus on the merchant side in its core markets of Greece, Romania, and Bulgaria, while simultaneously operating a consumer challenger bank offering users buy now, pay later (BNPL) services alongside day-to-day banking.

“It is very important to be differentiated”, Baron says.

[quoteblock content=”Our ultimate goal is to help people save time. We believe finance should be seamless, it should be embedded. It should not take up too much of admin time as it used to before.” author=”Petr Baron” author_position=”CEO of tbi fs, Founder-In-Residence” author_avatar=”https://tbibank.com/wp-content/uploads/2023/09/PETR-1.png” section_id=””][/quoteblock]

Earlier this year, the bank formally launched its mobile banking app, opening up 24/7 access to banking services along with a new Visa debit card that has no issuance or maintenance fees. Once the card is activated in the app, customers can make unlimited free transfers in lev or euro to other accounts in 36 European countries.

Within the app, customers can also set up virtual piggy banks, or “kasichka”, and set aside money for their saving goals in a bid to promote good financial habits.

Baron says local consumers were already demanding speed and new, innovative services when it came to their financial service providers.

“A lot of these new services were just simply not being brought into our markets yet,” he adds, despite the growth seen in other markets such as the UK, US, Asia and Scandinavia. “So we started bringing these solutions in, such as video identification, digital onboarding, digital signature, mobile-friendly solutions, and the ability to settle merchants instantly.”

The neobank now serves more than two million customers spread across its core markets – Bulgaria, Romania, and Greece – with operations in Germany and Lithuania as well, and claims to receive over 160,000 new applications each month.

Another challenger bank on the scene is Zvilo. Calling itself a “credit-led” challenger for the Balkans and other emerging markets, Zvilo aims to offer easily accessible credit at low fees to consumers in the region to help increase financial inclusion and boost financial literacy for the unbanked.

In October, the digital bank secured a debt facility of €50 million from Fasanara Capital, with which it plans to build out its lending offering for small and medium-sized enterprises (SMEs) in the region.

So, are global players ready to compete with these upcoming local challengers and enter a market such as this? Niewinski isn’t so sure.

“I wouldn’t necessarily say global players can capture on this opportunity. You still need to be more of a local player to address those needs, because those needs are not so obvious.”

He explains this with the simple rationale that locals, especially the underbanked, tend to have more trust in handing over their finances to a regional player than a global one. And with mobile usage in Southeast Europe on the rise, Niewinski stresses that to stay relevant, local incumbents need to have a digital and a semi-mobile strategy.

For tbi bank, Baron says the Southeast Europe region is its comfort zone, owing to the company’s understanding of consumer behaviour and the regulatory framework – two components he believes need careful balancing.

“Fintechs that have just become banks quickly understand that it is a completely different ball game,” Baron says. “They start losing their nimbleness and pace of growth and struggle when they get the banking charter.

“We’ve always balanced those two components, and I believe from that perspective, it makes us much more competitive.”

Changing times, changing needs

It seems as if local banks and fintechs have a strong window of opportunity to capture the bulk of the market in Southeast Europe, while foreign players eyeing the field will have to be quick in rolling out their strategies if they want to make any impact.

So where does that leave Southeast Europe in terms of progress – are there enough banking players already, or is there room for more?

“Are there enough? I would say yes,” remarks Niewinski. “But are they willing and able to address those needs? That’s a bit harder to say as it varies from bank to bank and country by country.”

“Theoretically, they should be able to address that. But will they step in and actively go for it? I hope so, because if not, someone else definitely will.”

Baron agrees with this sentiment. “Banking has to become more intuitive, more proactive towards the consumer,” he says.

“Over the years, the fintech revolution has showed banks that customers expect change, and I think a lot of banks are understanding this and trying to reorganise themselves to become much more consumer friendly.”


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