What Romanian Entrepreneurs Need to Know About Developments in Fintech
Payment Services Directive 2, also referred to as PSD2, will change completely how we look at the payments sector and so-called "open banking." Paired with technological advancements and the digitalization trend, the development and growth of the European fintech market is a sure bet.
According to the predictions of Teodor Bildarus, CEO of Romanian IT company Fintech OS, shared during the Future Banking conference, modern technology will lead the fintech market share of banking in Romania to 22 percent by 2020 and as the years pass, that share will only increase. The implementation of the PSD2 in Romania as well as at the EU level as a whole will be the first major push in this direction.
But, what exactly is the Payment Services Directive 2? It is a piece of legislation, proposed by the European Commission in 2013, that entered into force in January 2018, in order to create a level playing field for payment services providers and enable new companies to get into the payment services area. The legislation also promotes innovation, among other things, offers better consumer protection as well as standardizes and improves payment efficiency throughout the EU.
In short, the most significant change that PSD2 brings is that it ends traditional banks' monopoly over their customers account information and payment services. This means that bank customers, both retail and business, can now use the services of third-party providers, such as fintechs, to manage their finances as banks are obliged to ensure these providers with access to their customers' accounts through open application program interfaces (APIs). With access to these accounts, third-party service providers can now provide services on top of banks' data and infrastructure.
The first batch of clients to be chased by the fintechs once PSD2 enters into force will not be retail clients or the multinationals but instead, small businesses. For small and medium-sized entrepreneurs, controlling costs and reducing expenses related to operations, such as payments, foreign exchange, accounting services, etc., is always a priority. In this context, small-business owners and managers in Romania are becoming more aware and are looking for alternative services to those offered by the banks, which are usually associated with high fees, bureaucracy and long waiting times. This alternative is offered, without any doubt, by the fintechs.
Having said that, why don't all local entrepreneurs choose fintechs yet? The answer to this question appears to be simple -- either it is because they cannot yet give up on one or more services contracted from banks or simply because they do not trust these new services providers as they are not yet ready to use and benefit from the modern technology. These barriers, with the latter one being more difficult to overcome without a significant push, have already begun to slowly decrease their impact because of the positive experiences so far gained by using modern technologies in order to gain time and money.
An important factor in this process will be financial education, which in Romania is at the lowest level in the EU and fourth lowest in Europe as only 21 percent of Romanian adults were considered financially literate, as per S&P's 2015 Global Financial Literacy Study, way below a global average of 33 percent and significantly lagging behind the U.S., where 57 percent of adults are financially literate, or Germany (66 percent), just to mention two specific examples. On top of this, an increase in the digitalization of the population will also be a significant factor in driving the change.
But, no one can deny that the Romanian fintech market is growing consistently, as on one hand, young Romanian entrepreneurs are open to change and using new technologies and are thus driving this change. On the other hand, the growth of the local fintech sector as well as the entry to Romania of large international players, determined to develop the market, will have an impact, which paired together with legislative developments such as PSD2, will surely increase the appetite of local entrepreneurs for more, especially once they experience how modern technologies are not only extremely efficient but also bring financial savings to the company.