The Importance of a strong fintech Product: Solving today's dilemma

Fintechs in Romania are getting momentum because they introduced a different mindset in the financial industry and innovative solutions for consumers and companies. Alexandra Manciulea, partner at Filip & Company, gave us a perspective over the Romanian fintech ecosystem.

• This article is taken from Romania's Fintech Map by Future Banking. The report is available for download here.

How do you see the fintech ecosystem in Romania?

The fintech ecosystem in Romania is developing and we have seen new players joining the environment each year at an encouraging pace. The growth trend was accelerated by the Covid-19 pandemic. Payments, lending and financial infrastructure remain the preferred areas of interest for fintechs, but we expect insurtech, investech and wealth management to catch up in the upcoming future.

Banks remain an important player in the financial digital sector and we have seen interesting partnerships with fintechs emerging alongside an increased trend of banks to develop their own digital solutions. Fintechs have proved agile in difficult economic circumstances, which shows the ecosystem is ready for a new level of maturity. We expect an increase of M&A transactions in the fintech sector. We further expect an increase of the integration of financial services with the customers’ lives.

Local market – what are the main advantages compared to other markets/how about disadvantages?

The number and variety of fintechs in Romania aim to position our country as a fintech hub in Central and Eastern Europe. Our local market has the advantage of innovation driven initiatives, constant growth in the past years of the entrepreneurial environment, top internet speed and an openness from the customers to embrace new digital solutions. The geographical position of our country along with the discrepancies between the development of rural and urban areas can be a disadvantage for our local market.

One of the biggest problems of fintechs is the lack of financing. What can be done in this respect?

Despite the constant growth of the sector, access to funding remains a challenge, both in the form of equity and debt and in particular for fintechs in the start-up phase. We have seen an inflow of capital constantly going towards the fintech sector, but this is usually directed to fintechs that are more established and showing positive growth signs. Many of them do not develop up to that stage, and the reality is that they compete for the attention of a limited number of investors.

We see several banks partnering up successfully with fintechs or having start-up accelerators and bootcamps in place through which they support fintechs to grow and develop, either by providing access to funds or access to knowledge and resources. These places, along with other business events seem to be a good meeting point for these players to share ideas and solutions, including in relation to financing options available for their relevant stage of growth.

More recently crowdfunding has emerged as an alternative means of financing for fintechs, as well as a potential business opportunity for them. We see the first Romanian crowdfunding platforms applying for the relevant authorisation from the Financial Supervisory Authority and an increased interest from cross-border players to access the market by passporting their licences from other EU jurisdictions.

At a global level fintechs are a market segment that has continued to grow and bites from the traditional segment of the banks. How should a local fintech position itself in the global market?

The fintechs sector has grown and continues to grow at the global level. Rather than directly competing with banks, we see a trend of fintechs partnering up with them. Through such partnerships, while banks benefit from the innovation-driven solutions of fintechs, the latter benefit from a wider spread of their solution within the banks’ networks.

Another trend that we see is fintechs developing businesses in niche segments or to target niche customers. A strategy for finding the right investors and scaling the business should be a priority for fintechs from the onset.

Treating data security with maximum care is also very important as exposure to potential breaches triggers embedded legal and reputational risk. Special attention should generally be given to navigating the complex legal and regulatory background to avoid legal risks.

From a legal perspective, fintechs should keep an eye on the opportunities that lie in recently enacted legislation (for example, the possibility to use video identification means to perform KYC or the crowdfunding legislation) and remain up to date with the progress of future relevant legislation (such as PSD3 which aims to transform open banking into open finance or the European digital identity which could revolutionise access to digital services).

Few fintechs become profitable. What should be the business strategy and the model?

Having a solid product that generates value for users is essential. At the same time, as already mentioned, finding the right partners and partnerships is key, as well as having long terms vision while remaining close to the market realities and flexible to change whenever required.

What advice to you have for local fintechs?

In the last years innovation in the fintech industry has outgrown the regulatory developments and we expect this trend to continue. Fintechs should remain vigilant to regulatory changes. In particular when importing a business model from a different country, they should carefully consider its compatibility with the local legal environment. The same advice applies correspondingly when they wish to export a local business model in other countries.

Furthermore, for streamlining their licensing process, they should engage with regulatory authorities in the early stages and should remain in close contact with them and follow their advice.