Fintech, probably, won’t be the first thing that pops into your mind when you hear the word “Ukraine”. But did you know that one of the co-founders of the UK’s fintech giants Revolut Vlad Yatsenko is actually from Ukraine? Another Ukrainian native Max Levchin in 1998 co-founded the company that eventually became PayPal.
Over the past 3-5 years Ukraine itself has become a sort of sandbox where various experiments are being conducted. Many local banks now digitize their relationships with their customers using new technologies, such as messengers and mobile apps for communication, sales and service channels. A lot of work has already been done in terms of APIization and Open Banking.
Now that the Ukrainian government is focused on helping banks to digitalize, regulation is not as strict and the complexity of innovation is significantly lower than in other European countries, Ukraine can expect quite aggressive growth in the entire industry.
Let’s have a closer look at the impact of the COVID-19 crisis on the fintech industry, opportunities and differences in both markets, the role of regulators, and what to expect in the future.
The impact of the pandemic on the UK and Ukrainian financial businesses
Misha Rogalskiy has two fintech companies, one in each of the markets — Monobank and Koto. The former was already a well-established business in Ukraine at that time with more than 2,5 mln customers. The latter, Koto, is a new project trying to repeat the success of Monobank in the UK market. For Misha, the COVID-19 crisis resulted in two very different and even opposite stories.
“For the first 6 weeks, the biggest surprise for us at Monobank was how the customer behavior changed. We were expecting that people would get deeper into their credit lines, create a push on cash reserves, etc. But the opposite happened. People cut their expenses and their savings started to grow,” tells Misha.
The National Bank of Ukraine quickly and swiftly introduced the ability for banks to do a digital KYC (ed. — Know Your Customer) and open accounts without meeting face-to-face. This innovation from the regulator came at a crucial moment and helped Monobank and other banks continue to grow.
“On the opposite side of the spectrum there was Koto, which was set to go live on April 3rd of 2020. As you can imagine, it’s not the best time to start a new landing business in the middle of a pandemic. We had to move our launch date further and further,” he adds.
For established businesses, especially the ones that were embracing digital and online services, the pandemic actually was a big kick. But for small companies or startups that are in early stages, it was devastating. “I’m pretty sure that there were a lot of startups who didn’t survive that period unfortunately,” concluded Rogalskiy.
“It’s good that Misha highlighted those differences because it’s an important lesson for young startups to take,” notes Payal Raina, Founder at FinTech B2B Marketing.
Ersoy Erkazanci, Economic & Financial Correspondent at Bloomberg HT, shared his thoughts about the fintech environment during the pandemic.
“Everybody started using terms like touchless society, contactless society, cashless society, and we will see more of these. I see developments in regtech, suptech and comtech (ed. — supervision technology and compliance technology). Wealth-tech and robo-advisors are also growing. Crypto assets are growing and we will see more investment in insurtech,” says Ersoy.
Previously there were just banks and fintechs. But today telecoms, e-commerce companies, and last mile delivery companies are creating their digital wallets and taking fintech licenses.
Valeria Vahorovska, CEO & Co-Founder at Fondy, a Ukrainian payment platform, says they didn’t have any problems with the new situation as they are a cloud-based company.
“On the one hand, it was a really great push to speed up the digitalization of a lot of businesses and they really started selling online quite quickly. On the other hand, there was really sad news because some businesses, such as in the travel industry, unfortunately, either needed to close their operations or change their model completely and create something new,” Valeria adds.
According to Mariano Diaz, Director and Head of Banking and Infrastructure at TransferGo, in his company it was mixed. “We saw a very big uptick across different couriers on digital means. And because we are a 100% digital organization we saw a huge increase in terms of volume flow in their own transactions. This is a reason why the pandemic, with so many consequences across the world, has pushed digitalization in so many different areas. One of those has been on transactions where people have learned to use these new ways of sending money back home and/or doing transactions because of the circumstances.”
The opportunities and differences between both markets
Misha Rogalskiy shared his experience and the way he sees the differences between the two ways of doing business.
According to him, Ukrainian founders are focusing too much on the market inside the country and it limits the ability of companies to expand. “Unfortunately Ukraine’s now a bit of a different beast in terms of the market conditions and just general customer adoption of different technologies. Although for some technologies, Ukraine is much further than other countries in Europe.” he notes.
Shifting from operating in the Ukrainian market to working in the UK market takes a lot of change in mindset. “There are good things that are easier to do in Great Britain. For instance, the ecosystem is much more developed. There are a lot of the tech providers and service providers that you, as a startup, can access — PSPs (ed. — Payment Service Provider), processing companies, bin sponsors, companies that are doing KYC, etc. Whereas rin Ukraine you have to build almost everything by yourself.”
On the other hand, the regulations are different. “Sometimes it’s very challenging for someone from the Ukrainian market to make this shift. It involves a lot of big bills from lawyers that will be incurred.”
However, Misha still urges all the entrepreneurs in Ukraine to try and find at least one market outside Ukraine to start testing their technology and their product there.
Mariano Diaz talked about the relationship of TransferGo as a transaction fintech with the Ukrainian market.
“We started 8 years ago to support the Ukrainian diaspora across different countries. We’ve helped them send money back home in an efficient, low cost, and fast manner. So we’ve had a very good understanding of the behavior of the population. Ukrainians are digital savvy people. Also Ukraine’s one of the largest penetration markets in the world in terms of card usage.
Today the transaction company TransferGo is exploring different ways on how they can provide basic services to the population when they are outside of Ukraine. “That has made us very aware that more fintechs are trying to work into the Ukrainian market in various ways. Banking as a service model, a wallet, ledgers, payments, integrations and so on is a great area where I see regulators in Ukraine could help those new business models evolve. There is a good opportunity for fintechs willing to explore in more ways in the Ukrainian market,” says Mariano.
The role of Ukrainian regulators in supporting the fintech ecosystem
It might be quite challenging and even daunting for an international fintech company to go into Ukraine in so far as navigating local regulations and understanding local requirements for doing various things. Therefore, it’s important to do an assessment of the requirements before going into the country.
Mariano Diaz thinks that the National Bank of Ukraine is doing a great job in a few areas regarding the communication that they’re having with fintechs. “They’re very open for conversation. The regulatory environment in Ukraine is very strong compared to other markets where we operate. That’s very positive. For fintechs who want to do new things in markets such as Ukraine, having an easy way to understand requirements, timing, and opportunities for doing business in Ukraine is essential.”
Usually, this takes a lot of time. This is an area where regulators can create a clear set of parameters for fintechs willing to operate in Ukraine such as rules and instructions to make things easier.
What to expect in the near future
Valeria believes that fintech companies should be the troubleshooters. “Today fintechs should really focus on the service level, on the importance for businesses to speed up the process of receiving money, to move money, and on the cost of these transactions. Businesses need to use a new infrastructure, layouts of accounts, and new payment systems. They must also focus on the data and the data analysis.”
There’s a huge race in terms of conquering the world. This goes not only from neobanks but also from the fintechs behind supporting the neobanks globally.
Technology has driven a lot of cost reduction for transaction companies where they have come and competed very well against banks. But right now the capabilities that fintechs and new banks are trying to deploy across the world is to remove barriers, layers, intermediaries, to have direct access to payment systems and to the end provider. It could be a bank or another fintech that will make the last leg of the payment in a very efficient and low-cost manner.
“Payments become a commodity. Players are looking to get a bigger portion of the opportunity by having more efficient ways of completing payments, but they are also expanding by getting into new countries by obtaining local licenses,” Diaz tells.
Many countries have different approaches, and fintechs are starting to become more aggressive in finding ways to obtain the required licenses. It could be challenging in the future because there are opportunities for a lot of players to go to the endpoint of this. “In that sense countries like Ukraine that have open modern markets, produce opportunities for fintechs,” adds Mariano.
Tips and recommendations for Ukrainian fintechs
Misha Rogalskiy urges Ukrainian founders to try and enter foreign markets. “What I see in Ukrainian startups, in terms of tech and a product division is the worldwide level and you just have to take the courage and you should try and sell your products abroad.”
“Every time you need to take this risk and try,” Valeria believes. “But before that, be sure to do some research about the market. Just try to understand quite deeply what is going on in the market. Try to choose one problem which you would like to solve. After that, you can be successful, go to investment funds and you can start building your product at full speed.”
A good piece of advice from Mariano Diaz for founders is to never make assumptions. “Always base your decisions on specific facts, data and research. That’s how you move on, never assuming things.”
“Always think globally. Don’t think only about Ukraine or the UK. Always start with how your company can go global, what’s the problem that you are trying to solve, and choose your team very well, then there’s always a good opportunity to grow,” says Ersoy.
This article was written based on a panel discussion that was held by Payal Raina, Founder at FinTech B2B Marketing on July 15th 2021 during the first-ever UK-Ukraine FinTech Summit. The event was organized by the Embassy of Ukraine in the UK, TheCityUK, London Stock Exchange Group, and Sigma Software Group. The Summit was greatly supported byThe Ministryof Foreign Affairs of Ukraine, FinTech Scotland, The National Bank of Ukraine, TiE London, Emerging Europe, Sigma Software Labs, Ukrainian Startup Fund, UTEW, and IT Ukraine Association. The goal of the event was to explore current challenges and opportunities in the industry, uncover game-changing technologies and unleash new business opportunities for participants from the two countrie