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FinTech in Croatia: how fine is this technology doing?

Nikolina Kukoč

Nikolina Kukoč

21.07.2021.

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Definition of FinTech

Fintech is a broad category that encompasses many different technologies. As a term, it is also used to describe the impact of new technologies on the financial services industry. It often refers to the various products, applications, processes, and business models that have transformed the traditional way of providing banking and financial services. Although technological innovation in finance is not new, investment in new technologies has increased significantly in recent years and the pace of innovation is growing exponentially.

Every time you pay bills through your bank’s mobile app, check your account balance, withdraw money at an ATM, use one of the online platforms for money transactions – you use financial technology.

Your bank allows you to use the mobile app so you pay, transfer money and invest using a variety of new tools that didn’t exist a few years ago. Artificial intelligence, social networks, machine learning, mobile applications, distributed blockchain technology, cloud computing, and Big Data analysis have created new services and business models for established financial institutions and new market participants.

All of these technologies benefit consumers and companies because they give them better access to financial services, offer more choice, and increase business efficiency. They can also help reduce national barriers and encourage competition in areas such as online banking, online payment, and transmission services, lending, personal investment advice and services, and others.

When it comes to companies, before the emergence and introduction of FinTech, the owner or initiator of the company had to go to the bank to secure financing or start-up capital. If they wanted to accept credit card payments, they would also have to establish a relationship with the lender and even install certain infrastructure, such as a card reader. With mobile technology, these obstacles are a thing of the past. 

Evolution of Fintech

FinTech has been around much longer than most people think. While the latest iteration of FinTech allows you to pay for a cup of coffee with a mobile app, the history of financial technology can be traced back to the earliest credit cards that were adopted into the general public in the late 1950s.

After the credit card, financial technology evolved and introduced several major milestones to the mass market, such as ATMs, electronic stock exchanges, bank mainframe computers, and online stock exchanges. Each new piece of technology advanced the financial infrastructure that most people used every day but rarely had to think about.

Before the 1990s and the era of the internet, traditional financial institutions, such as banks, thrived on FinTech. In the late 1990s and early 2000s, online FinTech companies, such as PayPal, entered the market but didn’t threaten the traditional infrastructure until the 2008 global financial crisis. During this time, many people lost their trust in traditional banking while new generations welcomed free and easily accessible online financial services.

Today, FinTech solutions are challenging the traditional financial infrastructure, as more services transition to a new technological paradigm, such as using a payment app on a mobile wallet instead of carrying physical credit cards in a physical wallet.

FinTech has revolutionized many different markets, most notably the banking, trading, insurance, and risk management industries.

FinTech companies, which include startups, technology companies, and established financial institutions, utilize emerging technologies, such as big data, artificial intelligence, blockchain, and edge computing to make financial services more accessible and more efficient.

FinTech in the EU

In December 2019, the Expert Group on Regulatory Barriers to Financial Innovation (ROFIEG), established by the European Commission in June 2018, published its recommendations for creating a flexible framework for the technological provision of financial services (FinTech). The thirty recommendations of the ROFIEG group relate to the innovative use of technology in finance, the maintenance of a level playing field, access to data and financial inclusion, and the ethical use of data.

The FinTech report for 2019, which was created in partnership with two companies dealing with big data analysis, states that FinTech is the largest European investment category (representing 20% ​​of all global investments), and the sector is more active in Europe than in Asia and the US. The report also says that FinTech creates 150 billion euros in value, many jobs, allows you to gain experience, and creates products for European consumers.

Dealroom data on FinTech in the EU: European FinTech companies are more than 100% stronger than any other technology sector in Europe.

As early as March 2018, the European Commission adopted an action plan to encourage a more competitive and innovative European financial sector. The action plan set out the steps the Commission intended to take, such as enabling the strengthening of innovative business models at the EU level, supporting the introduction of new technologies such as blockchain, artificial intelligence, and cloud services in the financial sector, and increasing internet security and financial system integrity.

These initiatives aim to increase supervisory convergence towards technological innovation and prepare the EU financial sector to better embrace the opportunities offered by new technologies. Such steps would allow for innovative FinTech solutions and, in general, the ability to be rapidly implemented across the EU and reap the benefits of single market economies while preserving financial stability and consumer protection.

FinTech in Croatia

With an ICT market that is growing each year, Croatia is widely seen as the next FinTech destination in Southeast Europe. Some estimates say the country has close to 60,000 active ICT professionals already. It also has many FinTech companies with a presence in global markets as far as Southeast Asia.

Data overview for Croatia by FinTechAtlas

The exponential growth of financial technologies industries in Croatia is already drawing global interest – and could offer inspiration for the rest of the region. When it comes to the digitalization of the public sector in the Western Balkans, not that much happened until COVID-19 came along. However, as the pandemic has continued, certain public services have had to become digital by a force of nature, while the pace of others that started on this road in the last few years has accelerated. FinTech was one industry that was strengthened by the challenges that the pandemic has brought as more institutions and businesses opted for “digital-only” services.

Croatia’s biggest success story when it comes to FinTech and the digital payments sector is Microblink, a software company that develops computer vision technology. This R&D company from Zagreb was founded in 2013 relying only on the financial resources of its founders and without any outside investment. Within just one year, Microblink hit the big time with Photomath, an app that used the camera on mobile phones to read and solve maths problems.

Data overview for Croatia by FinTechAtlas

Since the Photomath app’s outstanding success, Microblink has received more than €5 million in external investment. Their current projects are based on AI and data extraction and are widely disseminated around Europe, Southeast Asia, and the US, with over 100 million users. Their main customers lie within the banking sector, with big financial firms using the technology from Microblink to embed in their own apps. Microblink’s products have opened up business opportunities for the company, which has been recognized by the fintech industry. It was listed among Europe’s fastest-growing companies for 2020 and luckily shows no signs of stopping its growth any time soon.

Another very successful FinTech company in Croatia is Oradian. Its founders saw that the smaller, but often fast-growing businesses were not getting what they needed from the big FinTech providers. So they set out to create a way for smaller finance businesses to reach and service customers in rural and remote locations by creating Instafin – a cloud-based core banking system that even the smallest financial institutions can afford to use, but which grows as they grow.

These two Croatian FinTech companies have made the Financial Times’ list of Europe’s fastest-growing companies. Oradian was the highest-ranked Croatian company at 113th place and Microblink took 438th place on the list.

Another FinTech company that is doing well is Elektronički računi, a company that primarily provides digital business services. It was founded in 2013 when digital invoicing was beginning to become an important segment of business modernization. Since 2014, they have introduced e-Invoice to tens of thousands of companies. This gave them a foothold in the market in EU member states at the time when the mandatory electronic issue of invoices in public procurement was introduced. Their idea was to make the e-Invoice available to everyone, with special emphasis on the SME sector, which usually does not have the financial resources to digitize operations. Elektronički računi had now positioned themselves as the largest private information intermediary on the market, sending about 200,000 e-Invoices a month to the Croatian government service that receives all electronic invoices addressed to public entities.

Data comparison for Croatia by FinTechAtlas

Notable to mention is also airt from Zagreb. Their airtAI solution is meant for small and mid-sized banks that are interested in applying new technology, such as artificial intelligence (AI), in order to get a better understanding of their clients, and thereby be better in preparing and communicating their products and services to them. airtAI will enable such insight to banks through data processing. Their solution processes transactions of the existing bank’s clients and, based on that, can predict how those clients will manage their money in the future. Based on this ground model, the models that solve specific business problems can be built in order to individualize the offer of bank’s services.

Built by another Croatia-based company, the cryptocurrency brokerage Electrocoin offers the service that enables shops to accept payments in cryptocurrencies for free, converting them into the national currency, the kuna. And Bitcoin Mjenjačnica gives you the possibility of currency exchange – buying and selling crypto.

Besides hosting companies that are developing high-quality FinTech products and services, Croatian towns are also implementing some of those technologies locally. The town of Sveta Nedelja became one of the first in the whole of the EU to introduce a payment service that includes cryptocurrencies.

Challenges for FinTech in Croatia

Even though financial technologies enter more and more segments of Croatian society, regulations about the way FinTech companies conduct their business remain a grey area. There still are no laws governing FinTech, blockchain, or artificial intelligence, so we need to work harder to bridge the gap between these galloping industries and our inert laws. Without exact rules in place, FinTech companies in Croatia have to discover where they touch the regulatory perimeter on their own, which isn’t always the best or the easiest way forward.

Bureaucratic hurdles and the presence of numerous regulatory bodies pose a challenge for all companies in Croatia, including those in the FinTech market. And while there are other successful FinTech startups and scale-ups in Croatia, what is lacking is a sense of cohesion that would make the Croatian FinTech scene a more powerful trend. Those are probably the biggest challenges FinTech in Croatia has to face.

Nevertheless, everyone has to start somewhere and Croatia’s FinTech scene seems to be on a good path. Let’s work together to keep it that way!

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About author:

Nikolina Kukoč

Researching is woven into my DNA, but I'm a musician at heart. Interested in too many things and always curious. Forever in love with Split and enchanted by people who teach me new things. When I'm not writing about Split's tech community, you will find me somewhere in nature, in the theatre, or with my head stuck in a book. I do my best to live by the verse from the opera "Fedora" by Umberto Giordano: "Love forbids you not to love."

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