Answer ... Due to the characteristics of the Hungarian financial market and the relevant EU legislation (especially the Second Payment Services Directive (PSD2)), in terms of fintech-specific regulation, the field of payment services is the most developed. The regulations in this space include rules relating to open banking, the regulation of account information service providers (AISPs) and payment initiation service providers (PISPs), and the instant payment system, which will launch in March 2020. The National Bank of Hungary’s (NBH) fintech strategy states that mobile payment solutions and other innovative payment solutions are the most common fintech products on the market. As it is the NBH’s strategic goal to increase the percentage of electronic payment transactions, payment services regulation will remain a key focus.
Innovation is also evident in the field of insurtech. In addition to online contracting, the use of big data and blockchain technology is on the rise; although no specific regulatory regime has as yet been introduced.
Crowdfunding and crowdlending are not well developed in Hungary, as they could easily qualify as activities requiring a licence. However, the NBH’s fintech strategy states that a special regulatory regime governing these activities should be introduced. Also, the EU regulation on crowdfunding platform providers will apply in Hungary once it is adopted.
Answer ... Several regulated financial institutions, along with start-ups, are developing new products to make payment services more easily available for customers and develop online banking and mobile apps to initiate transactions. The NBH estimates that approximately 100 fintech companies are offering products and services to clients in Hungary.
Although in Hungary more than 80% of transactions are cash transactions, most fintech solutions are offered in the payments sector, in particular regarding payments initiated via mobile. With the implementation of PSD2, AISPs have appeared on the market (eg, Aggreg8), offering financial data aggregation services that help service providers with credit scoring and tracking, among other things, and allow customers to pay utility bills. In cooperation with banks, fintech companies have also launched roboadvisory apps (eg, Blueopes). Innovations are also appearing in the insurance sector. Insurance company Aegon is offering ski-slope insurance via Insurwiz for clients. Pursuant to this blockchain-based insurance, the insurer automatically reimburses insureds if the ski-slope is closed during their holiday. Insurance company Uniqua has also launched its own fully online insurance product, called Cherrisk. Another insurtech innovation, called Cristo, collects data on time spent on the road: clients’ driving styles are analysed in order to calculate the premium to be paid.
Answer ... Fintech players are generally small start-ups. As their financial resources are rather limited, they are generally established in the form of a limited liability company or a company limited by shares, for which the minimum initial capital required by law is HUF 3 million and HUF 5 million respectively.
Answer ... Fintech start-ups are generally financed by their shareholders. It is relatively difficult for start-ups to obtain loans from banks. However, funding from business angels and investment programmes may be available.
Investment programmes (eg, Hiventures, OXOLabs) specifically tailored to start-ups offer a variety of solutions in terms of funding innovation, from the very early stages of incubation to entering international markets. Some of these programmes are financed from the governmental budget (eg, those under the Digital Wellbeing Programme) or EU funding.
Several banks have also launched incubator programmes to support start-ups. These not only provide much-needed financing, but also help start-ups to develop their understanding of the banking business. Such cooperation can also be beneficial for the banks, as they acquire new ideas and solutions which they can offer to clients.
Answer ... With the exception of AISPs and PISPs that are licensed or registered by the NBH, fintech players are generally independent companies which are not specifically regulated. However, their activities may easily fall under the scope of the financial regulations, in which case they can operate only if they hold a licence issued by the NBH.
It is quite difficult for start-ups to obtain a licence for the provision of financial or investment services. Most start-ups thus operate mainly as IT service providers or vendors of fintech products for financial institutions. In such cases it is the financial institution that provides the fintech solution to customers. However, certain financial institutions have also established their own subsidiaries and labs to develop innovative solutions.
Answer ... Start-ups often outsource back-office functions such as accounting and administration. As these companies are usually small, they generally use individual accountants or smaller service providers for cost reasons. Such services are easily available on the Hungarian market.
With regard to IT services, start-ups generally use cloud services.
Outsourcing may raise legal issues if the outsourcing party falls under the scope of financial regulations. In that case, core activities may not be outsourced, but only auxiliary operations relating to the provision of financial services in the course of which data processing is carried out. However, even if a financial service provider outsources such operations, it will remain liable for compliance with regulatory requirements.