CZECH REPUBLIC the current state of the fintech sector and its potential to contribute to financial inclusion and health - Česká fintech ...
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The Fintech market in THE
CZECH REPUBLIC
the current state of the fintech sector
and its potential to contribute to
financial inclusion and health
in collaboration with
20192 | tHE FINTECH MARKET IN the czech republic
Financial inclusion, health and
literacy in the Czech Republic
Globally, advances in technology are contributing to an increase in financial inclusion. Between
2014 and 2017, over half a billion adults worldwide opened a bank account, either at a traditional
financial institution or through a mobile money service. Although around 70 per cent of the world’s
adults now have an account, that leaves 1.7 billion still unbanked.1
In the Czech Republic, the proportion of Banking services
unbanked population is high compared
to other EU economies, although this Over the last decade, statistics on bank
trend is being driven by older generations account ownership remain relatively
(those over the age of 65) who do not unchanged, at 80 per cent for popula-
have an account.2 Also financially under- tion older than 15,4 placing the country
served are small and medium enterprises among the three worst-scoring members
(SMEs), whose cash flow makes them of the EU. A breakdown into categories
ineligible for standard bank loans, or however, gives us better picture. Nine
whose ventures are deemed too risky to out of ten Czech households have a bank
be financed by traditional institutions. account, and the percentage is even
The fintech landscape, and thus tech- higher for households of people under
nology-driven financial inclusion, health 65, where almost every single one has
and literacy, is shaped by several features: an account. The number drops to 63.4
per cent for single people above the age
• Higher mobile data prices than in of 65.5 Among unbanked individuals, this report has been
other high-income economies reasons given for not using bank services prepared by Maria
• Lack of a complex and technol- are: cost (40 per cent), and a lack of finan- Staszkiewicz (Czech
ogy-based financial education cial resources (39 per cent). Interestingly, Fintech Association)
strategy 25 per cent of unbanked people note a Justyna Pytkowska
• Underdeveloped capital market: lack of trust in the financial system. (MFC), and Kinga
the Czech financial system is Unlike most high-income economies, Dabrowska (MFC).
bank-centric, with banks holding in the Czech Republic there is a big class
74 per cent of the financial gap in financial inclusion. The difference
system’s assets3 in bank account ownership between the 1. The global findex database 2017
2. IBID
• Incumbents were not, until richest 60 per cent and the poorest 40 per 3. Czech Ministry of Finance, 2019
recently, motivated to provide cent households is 17 percentage points. 4. The global findex database 2017
5. Czech Statistical Office, 2017
innovative financial services The gender gap in account ownership is 6. The global findex database 2017
because they had monopoly very low, accounting only to 5 percentage
on the market and did perceive points.6
competition from fintechs.tHE FINTECH MARKET IN the czech republic | 3
Financial inclusion: Individuals and businesses have access to useful and affordable financial
products and services that meet their needs for transactions, payments, savings, credit and
insurance. It includes access to financial services, usage of those services, and quality of prod-
ucts and service delivery.
Financial health: having daily financial systems that help individuals and businesses build
resilience from shocks and provide the ability to pursue long-term financial goals.
Financial literacy: Having the skills and knowledge that allow an individual or business to
make informed and effective decisions with financial resources.
Savings An analysis of savings by income level
is more stark: less than half (47.9 per
One of the characteristics of the Czech cent) of low-income households saves
financial market is that households tend something on a monthly basis, with
to hold their resources in current or single parents being the most vulnerable
instant-access savings accounts (over category (47.2 per cent). Conversely, 80
75 per cent have on-demand deposits). per cent of higher-income households
At the end of 2018, deposits totalled can afford to save.
4,445bn Czech crowns, exceeding As for saving goals, the majority of
consumer credit by almost 34 per cent.7 the population creates a reserve fund for
This is being driven by a lack of a well-de- unexpected expenditure (70 per cent)
veloped capital market, and a population and old-age savings (59 per cent), almost
that is not used to investing their savings half puts aside money for holidays and
due to perceived risk. pleasures, and 30 per cent is saving for a
According to a recent study of the mortgage.
Czech Banking Association on financial When saving, 45 per cent of adults
literacy, the majority of the population (over the age of 15) saves at a financial
has savings, and the most frequent institution, while only 37 per cent of the
monthly amount of savings (34 per cent) poorest households do.
is between €40–100 (1,000–2,500 Czech
crowns). This amount, however, is not Loans and corporate financing
enough to cover long-term or costly
emergencies. In cases of a loss of income, Borrowing and credit card use is not
7. European Banking Federation, 2019 20 per cent of Czechs could maintain prevalent among the Czech population.
their current living standard for only one In 2017, only 29 per cent of all adults
month, 29 per cent for three months, had a credit card, while 37 per cent of
and 23 per cent for half a year. At the those aged 35–59 did. Twenty per cent
same time, savings are the main source of households, including those with the
of emergency funds for 61 per cent of lowest incomes, had a loan. Families
population. are the most frequent borrowers, while4 | tHE FINTECH MARKET IN the czech republic
among those older 65 the number of predominance of bank loans in the struc-
borrowers is close to zero.8 ture of corporate financing in the Czech
The year 2018 saw a rise in individual Republic poses certain limitations to
bank loans (an 8 per cent increase), and microenterprises and SMEs. First, the cost
a 5.7 per cent increase among corporate of financing is higher for SMEs due to high
sector. The demand for corporate loans interest rates that reflect the estimated
can be explained by an increased need to risk of the venture. Second, bank loans are
invest into automation and robotization, typically only available to companies with
especially by manufacturing companies, at least a two-year credit history. Analysis
who struggle with the lack of a skilled conducted by the Association of Small
labour force.9 Yet following the intro- and Medium Enterprises and Crafts CZ11
duction (by the Czech National Bank) of shows that 61 per cent of SMEs receive
a maximum allowable debt-to-income external financing after commencing
and debt-service-to-net-monthly-income their business activities, while only 31
ratios, the number of new mortgage per cent have external funds during the
transactions fell in the last quarter of start-up phase.
2018. The situation is a different for the
On a positive note, the Czech financial self-employed: a quarter of them take
market boasts one of the lowest ratios of a loan to commence business activity,
non-performing loans in the EU, which in and a fifth do so in the first months of
2018 stood at 1.4 per cent.10 Despite this, operations. Interestingly, 34 per cent of
the country still has significant problem in self-employed people use retail loans to
its high number of seizures. The number cover business operations. The average
of people with seizure proceedings in loan amount for self-employed entrepre-
2018 was 0.8m. An average number of neurs has remained virtually unchanged
seizure proceedings per person is 5, while over the last five years, around 38 thou-
there are over 100 thousand people with sand Czech crowns or approximately
over 10. The problem is more acute in €1,500.12 The same study reveals that
regions with higher unemployment, and entrepreneurs taking out loans criticize
in the northern and north-eastern parts complicated administrative procedures
of the country. This situation has partly and harsh collateral requirements. For
been driven by the activity of unregu- SMEs, the average loan in 2017 was 643
lated loan providers and legislation that thousand Czech crowns (slightly over
make seizure proceedings good business €25K). There is little awareness about
(e.g. high procedural fees that increase alternative sources of financing, and the
debt by hundreds of percent). possibility of external financing in general
8. CSO, 2017
Enterprises typically finance their among SMEs.13 9. European banking federation, 2019
activities through bank loans. According According to the 2018 edition of 10. www.ebf.eu/czech-republic
11. amsp, 2018
to the Ministry of Finance data, in 2016, the SAFE Survey,14 access to external 12. MIT, 2018
bank loans accounted for 25.5 per cent financing is the main problem for 6 per 13. mf, 2019
14. Survey on the access to finance
of business capital by volume, far above cent of SMEs (a rate comparable with of enterprises (SAFE). Analytical
listed shares (4.2 per cent) and bonds other EU countries); this figure has been Report 2018. European Commission,
November 2018
(3.6 per cent), putting the Czech Republic fairly stable over the years. There is a
at half of the EU average and one-third perception that the availability of bank
compared to Germany and the UK. The loans and credit lines has improvedtHE FINTECH MARKET IN the czech republic | 5
and will remain at that level. However, Public policy
financing conditions are deteriorating.
Interest rates and collateral requirements Comparatively low levels of financial
increased in 2018. Insufficient collateral inclusion (for the EU), easy access to
and high interest rates are seen as the consumer loans, underdeveloped capital
largest obstacles to obtaining external markets and a lower financial literacy
financing (by 12 per cent and 11 per cent are the drivers shaping public policy. The
of SMEs, respectively). National Strategy for Financial Education
Bank loans and credit lines are two was launched in 2010, and is currently
main sources of external financing (used under revision by the Ministry of Finance.
by 18 per cent and 28 per cent of SMEs, Recognizing that the capital market in the
respectively). While credit line use is on Czech Republic fails to “sufficiently fulfil its
par with other EU countries, bank loan main function – the efficient allocation of
use is below the EU28 average. unutilised financial resources from savers
and investors (households) towards
Financial literacy enterprises who need to fund their
development”, the government adopted
Knowledge of financial services, products a new strategy: National Strategy for the
and possibilities is a consistent weakness, Development of the Capital Market in the
as seen in the Financial Literacy Index Czech Republic 2019–2023.
prepared each year the Czech Banking The current situation is due to
Association. For 2019, the country scored “conservative distribution of household
57 out of 100, a negligible increase (by assets, low savings for retirement, low
one percentage point) from last year. awareness of enterprises about the
Three quarters of population think possibility of financing business and
their financial skills are sufficient, but in research through the capital market and
specific cases they would either ask for an inadequate supply of domestic finan-
advice or look for the desired information cial instruments available to retail inves-
online. Interestingly, half of respondents tors”. The main objective of the strategy
found it difficult to understand recom- is to improve the amount of household
mendations received from financial savings (general and pension savings),
advisor and experts. to diversify sources used for external
Almost half gain their financial knowl- financing, and create alternatives to bank
edge from their own experience, which financing and EU subsidies among SMEs.
explains the highest literacy among those
aged 50–64. People with higher education
also score slightly better than average
(66/100). People feel most comfortable
with managing household budget and
least with investing options.6 | tHE FINTECH MARKET IN the czech republic
The Fintech Sector in the
czech republic
Conditions for the development of the also use mobile banking, whereas for
fintech sector in the Czech Republic those aged 19–28 this figure rises to 50
per cent. Quality of online banking is an
16
Technological maturity important factor for choosing a financial
Czech society is well-equipped for the service provider, and one in four users
adoption of fintech services. Internet would even change their bank to obtain a
usage among adults is among one of the better online experience. Online banking
highest in the EU (84 per cent) and has is primarily used for wire transfers (96
risen by 7 percentage points since 2016. per cent), balance checks (92 per cent),
Fixed broadband is the more common and transactions (91 per cent). Only
type of connection; virtually all house- 14 per cent use it to borrow money.17
holds are located in a place with access Cashless transactions are less common
to fixed broadband, and three-quarters in the poorest 40 per cent of households,
have a subscription. However, mobile where only 58 per cent of these received
data subscription (which is even more wages or governmental transfers in 2017,
important for the consumption of online as opposed to the national average of 67
financial services), is one of the lowest in per cent.
the EU (82 per cent). This is due to the While digitalization of basic banking
high cost of mobile data, despite the fact services is prevalent, using internet to
that all (99.1 per cent) of households are acquire other financial services is lower
within 4G coverage and the penetration than the EU average. In 2017, only 11
of SIM cards is above 135 per cent.15 per cent consumers bought investment
Moreover, majority of mobile phones instruments, insurance or loans online,
(70 per cent) on the Czech market are compared to the average of 15 per cent
smartphones. in the EU.18
Electronic banking services are a strong
prerequisite for fintech development, and Cashless economy
the numbers highlight an positive trend Cashless payments account for more
in the Czech Republic. Recent years have than a third of all retail payments, thanks
seen an abrupt increase in online banking to the 200K terminals available to Czech
15. czech telecommunications office,
use, which rose from 48 per cent in 2012, customers who carry over 12m payment 2018
to 67 per cent in 2015, and to 95 per cent cards.19 Almost all cards and terminals 16. CBA, 2019
17. IBID.
in 2019. In 2018, 62 per cent of individ- enable contactless payments, which 18. DEloitte, 2017
uals aged 16–74 used online banking, constitute over 70 per cent of all transac- 19. bank card association, 2019
far above the EU average (54 per cent). tions. The volume of cashless payments
Today, 35 per cent of all account holders in 2018 was 700m Czech crowns; thistHE FINTECH MARKET IN the czech republic | 7
figure rose by a stunning 22 per cent and Financial Innovations at the Czech
from the previous year. The introduction National Bank at the end of 2018 is
of Google Pay in 2017 and Apple Pay in clearly a first step towards recognizing
2018 launched a mobile payment mania. the importance of public policy to the
According to a 2019 survey by Mastercard, development of the sector.
31 per cent of customers use their phone A certain amount of regulatory relief
to pay; smart watches are also popular. was brought by the launch of the Payment
As the number of cashless payments Services Directive that came into force in
in the Czech Republic is still lower than 2009. It created two new categories of
in other EU member states, commercial regulated entities: small payment service
companies are eager to cooperate with providers and small electronic money
the government to improve this. In 2019, issuers, who enjoy waivers such as no
a group of professional associations and specific requirements for entry capital or
Mastercard signed an agreement with the proving technical and personal qualifica-
Czech government to develop a cashless tions to offer services.
society. One of its pillars is the creation
of a dedicated fund to release 100–200K Fintech sector overview
card terminals free of charge to small
enterprises and the self-employed. the landscape
E-commerce is also growing. Since The diversity and maturity of fintech
2015, online shopping rose by 13 services reflect the state of financial sector
percentage points to 67 per cent in 2019 in the Czech economy and the financial
(by volume). The percentage of SMEs literacy of the society. Even though the
selling online is the fifth largest in the Czech financial sector is growing, its
EU (23 per cent) and Czech companies in share in the economy remains relatively
this category derive 18 per cent of their low. In 2017, total assets of financial
total turnover from online sales, placing institutions amounted to 145 per cent of
them third in the EU. On the other hand, GDP, whereas in the Euro area it was 272
e-government services leave much room per cent. Moreover, as described, capital
for improvement, especially on the market products are much less popular
supply side, as only half of the population than in other EU countries.
used internet to send a form to a public For example, the activities on the
authority (although this is similar to other Prague Stock Exchange are much lower
EU countries). than in the neighbouring Poland.
Another constraining factor is that banks,
Regulatory environment which until recently, had little incentive
There has been little regulatory activity to invest in financial innovation or coop-
directly aimed at fintech in the Czech eration with fintechs, as their dividends
Republic. The country is one of few in the remained high even during the financial
European Union with no specific program crisis, and competition has always been
(such as an innovation hub or sandbox), meagre.
dedicated to financial technology. The The situation is changing, however.
establishment of a division for Regulation Interest rates have fallen, and traditional8 | tHE FINTECH MARKET IN the czech republic
financial services (such as bank accounts technology projects or providing smaller
and retail loans), which make up most of companies access to infrastructure to
the financial sector, underwent commod- test new ideas, cooperation between
itization and their fees dropped. Thus, banks and non-banking financial service
to attract or retain customers, financial providers in the Czech Republic is similar
service providers have to refurbish their to that in other countries. Some main-
products. Combined with the onset of tain B2B (business to business) relations
mobile payments and an increase in in which smaller companies provide
e-commerce activities (through which technology solutions to banks (e.g.
consumers become accustomed to Zentity, Crif, Monet+). Others incorporate
financial technology), the entire sector is their solutions into banks’ offers (e.g.
expected to grow in the years to come. Fakturoid, Wultra). Some banks provide
Increase in cashless transactions, a decent vital infrastructure, liquidity or regu-
share of ICT specialists and graduates (3.6 latory support to fintech projects (e.g.
per cent and 4 per cent of the population, MutuMutu, Zonky).
respectively), high penetration of both Other fintech companies need banking
broadband and mobile Internet access, infrastructure to provide their services
and the eventual decrease of mobile data (such as payments and money transfers),
prices seen in the last quarter of 2019, in which case most, but not all, banks
can only accelerate the trend. perceive such fintech companies more
as competitors. Following the launch of
Incumbents’ approach the second Payment Services Directive
In terms of investment, the Czech (the purpose of which was to increase
Republic ranks second in Central and participation in the payments industry
Eastern Europe; by volume, 27 per cent from non-banks, and level the playing
of all fintech investments in the region field by harmonizing consumer protec-
were made in the Czech Republic.20 These tion and the rights and obligations for
rarely, however, come from the domestic payment providers and users), collabo-
banking sector, which prefers to support ration amongst incumbents and fintechs
in-house innovation, or, more recently, has increased.
the integration of services developed Not only are banks now legally bound
by fintech companies into existing bank to open their infrastructure and data
infrastructure. In 2018, the Czech Savings to licensed third-party providers, but
Bank (Česká spořitelna), part of the the creation of a Czech Open Banking
Erste Group, launched FintechCloud, a Standard led to more frequent communi-
cloud project that allows fintech startups cation between banks and fintech compa-
to create a solution that may be later nies and their associations. The standard,
embedded into the bank’s online banking. even though not legally binding, is an
attempt to create a level playing field
Enabling environment for all payment services providers. If
Ecosystem builders are entities that major banks comply with it, the standard
either create fintech projects commis- could generate more fintech solutions,
sioned by corporations and banks (e.g. bringing better and cheaper services for
CreativeDock) or are part of an incu- customers. While the legal obligation
bator/child companies established by a exists, however, not all Czech banks are
corporation to support fintech startups equally willing to grant trouble-free 20. Deloitte, 2017
both financially and in-kind through access to third-party service providers
mentorship or infrastructure access (e.g. in a way that would allow fintech compa-
O2 Bolt, KB Smart Solutions). nies to offer smooth, seamless and
Besides incubating new financial customer-friendly services.
Size and structuretHE FINTECH MARKET IN the czech republic | 9
the by far the most underserved part of
In 2017, the fintech sector generated a the population. This category does not
combined revenue of between 400 and include reward-based crowdfunding plat-
800m Czech crowns (€16–32m), of which forms, as they do not provide financial
approximately 80 per cent was generated services per se.
by selling products to end customers, It does include:
with the rest by B2B sales.21 The same • P2P retail lending platforms
study envisages the potential growth of are less common due to recent
fintech revenue in the coming years to regulation of retail loans, but one
between 2.9 and 7.8 bn Czech crowns of the biggest fintech companies,
(€0.1b–0.3b), potentially giving fintech a Zonky, is in the sector.
0.9–2.3 per cent share in the entire finan- • Corporate financing is a rapidly
cial sector of the Czech Republic. growing area, providing factoring
Currently, there are around 120–150 or working capital for SMEs,
Czech fintech companies (i.e. non-bank either using its own capital
financial institutions) that use technology (e.g. Cashbot, Lidya) or via P2P
to provide financial services both in platforms (e.g. Roger platební
business to business (B2B) and business instituce).
to customer (B2C) models. This number • Investment crowdfunding offers
includes foreign fintech companies with retail investors the opportunity to
an established presence in the Czech provide capital to SMEs by buying
Republic. Among these are start-ups, shares (e.g. Crowdberry), securi-
scale-ups, and well-established medium ties (e.g. Fundlift) or to invest in
size companies. They operate in all areas secured loans (e.g. Bondster).
of financial sector, including:
Insurance
Payments Insurtech is not a well-developed
Fintechs in this varied and strong group segment, but some interesting compa-
either offer: nies are emerging, including MutuMutu,
• Alternative payment methods which combines insurance products
(such as delayed payments by with motivational content to encourage
Twisto) healthy lifestyles. Another example, První
• Technology solutions, such as klubova, includes a P2P platform.
payment gateways (e.g. Comgate,
GoPay), payment apps and Forex
online point of sale (e.g. Trisbee, Foreign exchange fintechs tackle the
Red Eggs) or prepaid card (e.g challenge of high exchange rates and
Kličenka, a multipurpose card long processing times for cross-border
for students by Mastercard) or payments by offering cheaper and more
electronic meal ticket (e.g Gusto, accessible services to not only retail
Edenred). customers but also SMEs. Among the
several that operate in the Czech market-
Digital financing place are EasyChange and RoklenFX.
Digital financing is a significant area
in the Czech fintech landscape. These Financial management
21. Deloitte, 2018 companies primarily operate in the alter- Financial management fintechs offer
native retail and corporate lending, often software, tools, solutions and platforms,
conducted via peer-to-peer (P2P) plat- automating traditional processes to help
forms connecting individual borrowers individuals and SMEs; often they include
with lenders/investors. A significant algorithms and big data analysis or behav-
number of these focus on SMEs and ioural economics to provide tailor-made
self-employed financing, as these are management solutions:10 | tHE FINTECH MARKET IN the czech republic
Although most fintech companies do not self-identify as drivers of financial inclusion and health,
they develop more affordable and more user-friendly financial services, which undoubtedly
impact on both financial inclusion and health.
For this study, we conducted 12 interviews with companies representing different business
models and segments. Input from these interviews were aggregated to consider key aspects
of the Czech market. The insights that follow are synthesised from these conversations, and
should not be read as the perspective of any one participant in particular.
• Corporate finance management: scoring solutions (e.g. Nikita by Twisto, or
online tools for accounting and CRIF).
cash flow management (e.g.
Fakturoid, Rossum) Cryptoassets
• Personal finance management: Cryptoasset fintechs is a varied and
easy-to-use financial manage- robust group of companies offering
ment tools for individuals that services related to virtual currencies,
don’t know much about finance; utility tokens and asset tokens. These
services include budget and range from trading platforms to buy and
spending management as well sell using cryptocurrency (e.g. ccShop),
as saving targets. This category ATMs for cryptocurrencies (e.g. Bitcomat)
includes two strong companies and banking-like services (e.g. Bitstick).
that serve customers beyond Currently, these assets are used for high-
Czech market (Spendee and risk investments, a store of value for those
BudgetBakers), as well as compar- who either believe in the decentralization
ison site and financial advisory of the financial system, or by experienced
sites (e.g. Chytry Honza). investors who want to experiment with
new asset classes. However, due to recent
Software/SDK/cybersecurity/data analysis22 misleading and/or fraudulent advertise-
This is a broad category of B2B financial ments for cryptocurrencies, the need for
technology companies that cater directly immediate proper customer protection 22. SDK: Software development kit
to traditional financial services providers measures is clear—and in the longer
(i.e. banks). These include infrastruc- term, to regulate this new emerging
ture builders for API and online identi- market and its instruments.
fication (e.g. Monet+, Zentity, Wultra,
Trask); cybersecurity solutions (including
BulletproofAI, a company using AI to
protect financial infrastructure against AI
attacks); and technology-enabled credittHE FINTECH MARKET IN the czech republic | 11
Financial inclusion, health and
literacy in the Czech Republic23
Fintech and financial inclusion company uses a special algorithmic credit
scoring method (Nikita), which uses not
Access to financial services for the excluded or only data from debtor registers but also
underserved an array of other sources such as social
The unbanked, in Czech society, fall networks or demographic and geographic
mainly into two groups: people aged inputs. Among other target groups are
above 65 (constituting the majority of consumers who want to do online cross-
people without a bank account), and border shopping but are wary of cyber-
low-income people, who view bank security concerns and prefer not to use
accounts as being prohibitively costly. their debit or credit card.
No fintech companies specifically target A significant number of Czech fintechs
older people (who are usually not tech create new sources of capital or cash flow
savvy), while solutions for lower-income to SMEs. Roger shortens invoice payment
people are not seen as attractive business times to 3 days, thus providing necessary
opportunity for fintechs. liquidity to smaller companies—espe-
Czech fintechs, however, develop cially those who sell to large compa-
solutions for the “underserved”—solu- nies with accounts payable timescales.
tions that can be classified in three major The platform is connected to invoicing
groups: (i) more affordable products that systems, making financing seamless and
are an alternative to traditional services hassle free. The SME sends an invoice
(ii) easy-to-use technological solutions to Roger and receives a partial payment
that reach new groups, especially younger instantly. The remaining part of the
generations that would otherwise not payment (minus the fee) is sent by Roger
use financial services, or (iii) entirely new to SME after recovering the amount from
products not available from traditional the invoice payer. Roger does not use its
23. As part of our research, we banks. own money to pay for the initial invoice
interviewed the following fintechs:
Cashbot, Crowdberry, Česká Twisto, for example, offers a credit line payment, it raises money from investors.
spořitelna, Easychange, Fakturoid, via a mobile app to younger customers The risk is low if the invoice payer is a
Fundlift, Mutumutu, Red Eggs/
Klíčenka by Mastercard, Roger, (age 20–30), who are uninterested large company, such as a supermarket.
Spendee, Twisto, Zentity, Zonky. in taking a traditional consumer loan These same motivations and draw-
The following insights should be
understood as a synthesis of all because of the paperwork, or are unable backs on the Czech market led the owners
our conversations, and should not to obtain one due to a lack of credit history of Cashbot to create their solution. Their
be interpreted as the official point
of view of any of the individual or stable income. It does so by providing main target groups are SMEs and self-em-
participants. a delayed payment (buy now, pay later) ployed people, who usually issue only a
used when shopping online. To do so, the few invoices per annum—this negatively12 | tHE FINTECH MARKET IN the czech republic
affects their cash flow and means they (expanding their potential base of inves-
can’t afford a loan at a traditional institu- tors and investments). As with Fundlift,
tion, or the loan amount available would its investment process is done primarily
not cover their financial needs. As an online.
alternative to factoring, Cashbot lends its
own funds to companies that are growing, More affordable solutions
operating in industries with long maturity In the retail financing area, Zonky is by far
of invoices (health, construction, public the biggest P2P consumer loan operator.
sector) or influenced by seasonality (such It targets the standard banking popula-
as wholesale and agriculture). The busi- tion (with no previous delinquency and
ness model relies on the fact that B2B reasonable income) and aims to lower the
lending is not a regulated activity in the cost of lending. In 2019, its products were
Czech Republic, as it is in other coun- on average one percentage point lower
tries (e.g. Austria, Germany), which may than bank loans (8.37 versus 7.16 per
hinder its expansion. Similar to Roger, the cent). At the outset, Zonky also offered
process is fully automated, with invoices loans to unemployed people, and those
uploaded to the app, online scoring, with financial problems, however bad
real time disbursement for approved experience these customer categories
customers. For customers who prefer led to them being dropped. Automatic
personal meetings, Cashbot offers this connections between debtors and inves-
service as well. tors on the platform enable cheaper
processing, which leads to lower cuts
Improved access to finance for customers. Despite its less-expensive
Rather than tackling daily cash flow offer, the company had to invest a lot into
concerns, some fintechs create new marketing to convince potential clients
sources of growth financing and provide switch from traditional banks, which
an alternative to institutional investors Czech customers are more accustomed
(who demand equity and a board seat), to.
or banks (who are unwilling to support In the payment area, Red Eggs
riskier ventures in the start-up or scale-up provides infrastructure to self-employed
phases). Private debt provides financing people and small companies, especially
more quickly than banks and can offer those who are obligated to keep elec-
financing terms unavailable in the stand- tronic records of cash sales for goods and
ardized banking products. services. The company developed a lean
Fundlift is another example of corpo- payment gateway (based on a QR code
rate financing for SMEs. Companies that or a link) that does not require robust
pass a vetting process run a crowdfunding infrastructure and can be used on mobile
campaign on the platform that is aimed devices, PCs or even sent by SMS. The
at retail investors, and if successful, the portability of the solution means it can
company issues those investors secu- be used by merchants selling in various
rities (bonds). Due to complex regula- physical environments (festivals, fairs,
tory environment, Fundlift (a regulated sidewalks, etc.)
entity) functions as an intermediary, yet Yet another technology-enabled value
their platform makes it easier to allo- proposition is forex, which offers a better
cate capital. A new entrant on the Czech exchange rate and helps those sending
landscape, Crowdberry, is another invest- remittances or SMEs conducting business
ment marketplace which, instead of abroad. EasyChange allows for low-cost
debt-financing, offers shares in startups and fee-free conversion of selected
or SMEs. The company operates on the foreign currencies (Euro, US dollars
Czech and Slovak markets, but its port- and British pounds) to and from Czech
folio includes companies from the entire crowns in clients’ own bank accounts.
Central and Eastern European region EasyChange customers save 3–5 per centtHE FINTECH MARKET IN the czech republic | 13
when paying invoices, salaries, pensions, categories based on needs: people with
dividends, or savings issued in foreign life-changing issues, people who like
currency compared to the average bank being in control of their finances, those
exchange rate. who “want” to save, and those who
“need” to save. The app combines ideas
Fintech and financial health from behavioural economics with the
Hook model (concerning habit-forming
Lower operational expenses product design) to deliver variable
Fakturoid is one of many online tools rewards to users in the form of highly
available (predominantly for self-em- personalized financial advice and daily
ployed people) who cannot afford to buy insights.
accounting software or hire an in-house As with similar solutions, the user
accountant/financial manager. This experience depends strongly on the
online solution helps them manage their openness of banks, and the extent to
Mobile and desktop cash flow and comply with accounting which their APIs enable easy access to
apps for financial and basic tax regulations—saving both their customer data. Although data-
time and money for thousands of SMEs sharing is compulsory for banks, not all of
management are them make access easy. For that reason,
and self-employed. It also facilitates the
gaining popularity, cooperation with external accounting Spendee is also an energetic supporter
especially in the consultants by allowing the SME to export of the development of a harmonized
their accounting data to bigger systems. open banking standard. The other app,
SME sector, which Wallet by BudgetBakers, focuses more on
Due to the complexity of accounting
constitutes 99 systems, which are not harmonized, markets beyond Europe, but offers the
per cent of Fakturoid caters to Czech-based same functionality; it aggregates trans-
customers, but also supports invoices action data across multiple accounts,
businesses groups spending by category, allows
in nine other languages. In addition to
nationwide. offering traditional accounting functions, users to create a budget, shopping lists,
Fakturoid offers basic financial support in and saving goals.
the form of accounting rules embedded in On the insurance scene, one inter-
the application, tracking VAT registrations esting product combines affordable user-
or checking the validity of data entered friendly services with healthy lifestyle
against public registries. Fakturoid offers motivation. MutuMutu provides online
integration with the internet banking of life and income protection insurance,
one bank (Komerční banka) and has tech- which reduced the number of excludable
nical integration with one Czech payment conditions from around 40 to 8. This
gateway, which allows its customers to means it covers people with illnesses that
accept online payments. other companies won’t, including psycho-
logical disorders, back problems, lifestyle
Improving financial behaviour diseases (e.g. type II diabetes), hepatitis
The Czech fintech sector has generated or HIV. MutuMutu also aims to make their
two strong personal finance manage- offer more transparent, as seen in its
ment applications, both operating insurance contract that is written not in
globally. Spendee, which has a stronger legalese but customer-friendly language.
presence on the Czech market, enables A third of their customer base are those
customers to manage and understand that are self-employed, who are attracted
their personal finances in one single by the company’s offer for insurance
place by enabling them to connect all against temporary income shortfalls. The
their bank accounts, e-wallets, crypto technological innovation comes in the
wallets, all other financial products and form of motivating customers’ behav-
manually add cash spending figures. The iour by rewarding health-enhancing
app primarily targets millennials (aged activities. With customer’s consent, the
23-38), and divides users into four main MutuMutu app tracks their activities14 | tHE FINTECH MARKET IN the czech republic
(walking, cycling, jogging) and offers up autumn 2019, it organized a number of
to 30 per cent cashback on insurance plus meetings for older people to give them a
a 10 per cent extra annual discount for better understanding of modern technol-
non-smokers and annual check-ups. ogy-based financial services.
Supporting financial literacy Increased revenues
Unlike fintech companies that lack the Technology solutions can also lead to
resources needed to support financial better economic outcomes for non-fi-
literacy, all the biggest banks on the nancial companies. For instance, several
Czech market have developed such tools. Czech e-commerce companies have
In 2017, Česká spořitelna launched a adopted Nikita, a credit scoring solution
comprehensive program (called Alphabet developed by Twisto. Reliable online
of Money) for elementary schools pupils, scoring enables them to quickly onboard
expanding to high school students and new customers and introduce new
people aged 55+ two years later. The products. E-commerce giant Alza uses
program includes an interactive online this to enable customers to acquire a
game, educational materials with virtual new mobile handset each year, repaid
reality components, and special digital in instalments rather than in an upfront
literacy courses for older people. People lump sum. Thanks to Nikita, there’s no
aged 55+ can also make an appointment need for the customer to apply for a
for a crash course digital literacy in a bank consumer loan, and with a positive score
branch. they can receive the product or service
A similar approach has recently been almost immediately.
taken by another big bank, Komerční
banka (part of Societé General). IntHE FINTECH MARKET IN the czech republic | 15
future opportunities for fintech
in promoting financial
inclusion and health
Thanks to recent positive changes in be unwilling to change their habits. More
the regulatory landscape, especially promising would be a focus on low-in-
the second Payment Services Directive come customers, who perceive tradi-
(which steadily pushes traditional players tional services as too costly.
to embed digital solutions into their offer
and lifts obstacles to startups in the finan- Working capital for SMEs
cial market), the Czech market should see SMEs constitute 99 per cent of Czech
real growth in the coming years. companies, and although there are
Increasing numbers of fintech compa- already several companies providing such
nies are obtaining a licence from the services (Roger, Cashbot, Lidyia) they are
regulator, while banks are starting to not yet widely known or used, especially
perceive them as partners that can enrich by smaller companies. Small compa-
their offer. Demand for digital solutions nies, supplying to bigger enterprises or
is strong, as seen in the quick uptake corporations, are often forced to accept
of mobile payments (Google and Apple prolonged accounts payable terms, or
Pay), and is clear from the fact that half grapple with the reality that almost
of all smartphone owners has at least one one-third of invoices are paid in arrears.
financial app installed. When banks cannot provide working
Whereas some segments of the Czech capital loans to SMEs, one option is to
market are already well covered (such as refer would-be customers to alternative
payments or financial technology infra- products (as happens in the UK, where
structure), there is plenty of room for banks are obliged to inform rejected loan
improvement as well as business oppor- applicants on alternative possibilities,
tunity for new technology-based financial such as non-bank lenders or P2P).
services and products.
We forsee that the Czech financial Further decrease of corporate dependence on
sector the following areas will experience bank loans to finance SME growth or R&D
more competition and might yield inter- As elaborated in EU policies devoted to
esting business opportunities in the years SME growth (e.g. Capital Market Union)
to come: and called out in the Czech strategy for
capital market development (based
Outreach to the underbanked on World Bank recommendations),
The underbanked comprise 18 per cent “Dependence of enterprises on self-fi-
of the adult population, although the nancing or bank lending can nega-
majority of these are aged 65+ and may tively affect managerial decisions and16 | tHE FINTECH MARKET IN the czech republic
subsequent business development... low-income households. This is espe-
when companies are dependent on bank cially relevant for younger consumers
financing, banks often impose higher with no credit history, those with irreg-
risk management requirements. This ular income or low-income households.
means that a borrower often adapts Accessible, transparent and cheaper
their business plans in accordance with credit solutions enable them to bridge
the wishes of the bank, or curbs growth periods of decreased income or cover for
ambitions, and limits high-yield risky unexpected needs, and thus contribute
investments”. For Czech and European to the overall well-being of the society
SMEs to grow, they need capital injec- and a healthy economy. Most of the inter-
tions, which they often cannot obtain viewed Czech companies emphasized
from banks due to a lack of credit history transparency of their services, where
or collateral. Moreover, capital market their customers are comprehensible and
instruments (such as bonds or shares) are informed in simple terms on the final
may offer a cheaper means to obtain price of the financial product. Apart from
growth capital. Access to new sources of technological edge, the focus on clarity
corporate financing is necessary in light and no hidden fees is seen by fintech
of the growing need for automation and companies as their main advantage over
digitization, which will help Czech compa- traditional institutions.
nies remain competitive regionally and
globally. open banking
When it comes to financial health, the
Development of affordable and understandable regulator should focus on the creation of
capital market instruments to assist Czechs in a truly open banking environment. Only
yielding higher returns on their savings through well-functioning open banking
Czech households are very cautious when APIs , compliance of traditional players
allocating their savings, which are mainly with the philosophy of open finance, and
kept on savings and current accounts. supervision of the cybersecurity of finan-
Owing to that, the wealth of Czech cial services, will consumers benefit from
households lags behind their Western personal finance management services
neighbours. Therefore, technology-based and multi-banking offers that allow them
investment instruments that are more to fully grasp their financial flows.
liquid and accessible, combined with
proper customer protections and infor-
mation campaigns, can address this gap
in the Czech market.
Credit products for retail customers
Credit card use is not widespread among
Czech consumers, signalling a business
opportunity for companies such as Twisto
or its competitors. This is especially rele-
vant for younger consumers with no credit
history, those with irregular income, andAnnex 1: financial inclusion indicators for the czech republic
Source:
The Little Data
Book on Financial
Inclusion, 2018The Microfinance Centre is a social finance network that promotes fairness, inclusion, equality and responsible service. We unite 113 organisations (including 77 microfi- nance institutions) across 36 countries of Europe, Central Asia and beyond, who together deliver responsible microfinance services to almost 2,000,000 low-income clients. Our mission is to empower individuals and sustain communities through innovative social finance and microfinance. This publication was prepared as part of the project entitled “Building Innovations for Social Finance in Europe” funded by MetLife Foundation. Web: www.mfc.org.pl Email: microfinance@mfc.org.pl Twitter: @MFC_Network Facebook: @MFCNetwork LinkedIn: @mfcnetwork
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