Banks could lose hundreds of thousands of customers in a flash in Hungary
Banks are facing a period of struggle, according to András Becsei, Vice-President of the Hungarian Banking Association. This is why the 22-point package was made, but customers will only feel the effect if the entire package, or at least a majority of it, is implemented, Becsei added. The banking sector has been working on digitalisation for a long time but it has only really picked up recently, and cashless transactions could double between 2016 and 2021.
Most fintech companies come from outside the EU, with the U.S., Asia and Sout America leading the way. According to KPMG's latest summary, only one top 10 fintech company, Atom Bank, is from Europe. "Their mortgages are still a bit too expensive and would hardly rate as qualified consumer-friendly products, but they do have a lot of good services," Becsei said. While the EU was busy with data protection regulation GDPR, China showed the world how the banking sector and fintechs can cooperate to jointly develop solutions, he added, pointing out that regulations limit opportunities substantially in Europe.
The EU was slow to react and took several years to come up with its fintech plan in March 2018, but the market is changing much faster than that and fintechs can attract huge customer bases from incumbent banks practically out of the blue, Becsei said.
In South Korea, Kakao Bank, a fintech embedded in social media, entered the market and gained one million customers in just five days, had two million after two weeks and is now at 10 million customers, Becsei said. A company present in social media entering the Hungarian banking market could have 400,000 customers in just two weeks considering the network effect.
In the proposed package, the banking sector has collected the various pieces of legislation that currently do not allow digital contracts and other electronic processes. The proposal would make use of existing e-government identification and storage in banking, such as mailing documents currently only receivable in certified mail. Using electronic ID is another example: in China it is just read by banks, whereas in Hungary its plastic card is photocopied, stamped and signed, Becsei pointed out. There are a lot of digital projects and processes that still end in citizens receiving a stamped document that they can then take to the next authority or to their banks, he said, adding that the proposals would improve this situation.
A key part of the package proposes to decrease the amount of cash in circulation. Cash use has increase in recent years and this costs Hungary about HUF 500 billion annually, Becsei said. The banking association would thus decrease the cash limit on B2B transaction from HUF 1.5 million to HUF 500,000 and proposes that all retirement pensions be transferred electronically after 2020.
Transaction fees contribute HUF 226 billion to the central budget, between HUF 50 and 60 bn of which comes form households, Becsei said. Compared to the cost of cash use, it is easy to see how the budget would benefit from abolishing transaction fees and promoting the spread of electronic payment, he added.
When a Hungarian financial institution transfers money to a bank account, it pays a transaction fee, but is it uses a foreign app to transfer the same amount from a British e-money account's forint-based sub-account, it is exempt from the fee. This makes it easier to offer cheap services, so the game is rigged in favour of fintechs, Becsei pointed out, adding that it would be pragmatic to avoid having different regulations for different market players.
