The term fintech — financial technology — appeared in the 1950s with the introduction of credit cards. A lot has changed over the past 70 years; financial technologies employ cloud storages, biometric data and even artificial intelligence. At the same time, the way fintech develops in Russia differs greatly from the US and Europe.
Digital transformation and loyalty to tradition
The development of fintech in each country is closely tied to the development of the banking system. For instance, in Switzerland, many organizations hold in-person meetings with clients, offer classic solutions and work with paper documents. It is because most large banks in the country date back centuries. Thus, the private bank Bordier & Cie SCmA was founded in 1844. To learn more about its services, clients can make an appointment with a consultant using the bank website, or by e-mail or phone. In contrast, clients of the Russian bank Tinkoff can quick order a new bank card on the bank website.
Such old banks like Bordier & Cie SCmA introduce innovations very carefully. For instance, the company has integrated the banking platform Sygnum B2B for digital asset trade. In Russia, private banks most often develop their own programs and apps.
After the dissolution of the USSR, Russia, unlike Europe, had to build its banking system from scratch. IT technologies were of big help there: since there was no ideal model of banking software, Russian-made developments were created to satisfy the requirements of the financial sector.
For a long time, Russians were wary of financial technologies, but things have changed over the past years. In 2011, MTS launched Russia’s first system of contactless payments through phone, but people rarely used it. In 2019, Russia was ranked fourth in terms of contactless payments using smartphones or smart watches with NFC, leaving behind the US that ranked eighth.
Fintech regulations in different countries
In Russia, the development of financial technologies is far ahead of the development of relevant regulations. It is both an advantage and a fault of the Russian fintech. On one hand, it creates many risks related to fraud, and on the other hand, it allows for introducing technologies and constantly upgrading the financial sector.
For example, the regulation of P2P loans has been discussed in Russia for the past couple of years, but the question remains open. At the same time, the US and Europe have long dealt with this issue at the legislative level. P2P personal loans are offered directly to individuals without the intermediation of a bank using the blockchain technology. Neobanks with mobile apps have also been developing; they will take time to gain trust of potential clients.
The lack of regulating measures in these areas creates healthy competition in Russia; borrowers and investors are offered a wide range of companies and the chance to find the most attractive solution. Competition promotes the constant search for improvements and innovations.
One must keep in mind, however, that regulations always appear when new financial technologies become popular. The rapid development comes to a halt because new laws complicate the process of operating and receiving permissions, and also require big investment. As a result, Russian bureaucracy has a negative impact on the development of financial technologies.
Russian fintech lacks investment
The development of Russian fintech has always been slowed down by a lack of investment. In the first six months of 2021, $12.6 bln was invested in European financial technologies. Large startups collect record funding this year. For instance, the Swedish fintech company Klarna that provides online financial services such as post-purchase payments has attracted $640 mio in investment. The US also has fintech giants: the Stripe payment processor has reached $95 bln valuation.
The Russian market has few prominent players. Those include Tinkoff, a commercial bank whose capitalization amounts to $17.4 bln. Initially, Tinkoff Credit Systems was launched with funding that came entirely from its founder Oleg Tinkov — unlike Western and American financial companies, which took off due to external capital. The project began attracting investors only after it became successful.
Russian corporation Yandex is also planning to develop the fintech sector in Russia. The company has acquired Akropol Bank and will make efforts to introduce its own financial technologies. This all is a testimony to the steady development of fintech in the country. Yet, it should be noted that Europe and the United States have small startups that serve as the basis to offer innovative solutions, while the situation is different in Russia. The development of the country’s fintech market is taking place based on operating major banks, which focus extensively on the progress of digitalization within the system.
Investment robo-advisors: A soaring trend in Russia
Due to advancing financial technologies, businesspeople are spared from having to build investment portfolios on their own: the task can be handled by robo-advisors, special digital platforms that automatically create a stock portfolio and provide portfolio management with no human supervision.
Robo-advisor made its first appearance the United States in 2008. Since then, the US has remained leader in the use of these platforms. In 2017, an automated advisor to the private company The Vanguard Group managed assets of $47 bln. Such financial programs are also utilized in Germany, Austria and other European countries.
In Russia, automated advisors emerged only in 2016. Today, the service for automated management of investment portfolios is available at VTB Bank, Tinkoff Bank, Citibank and other brokers. Sberbank is planning to write its own algorithms for robo-advisors. A typical robo-advisor operates in a simple way: it gathers information from a client through an online survey and then uses the data to offer investment strategies, such as blue-chip stocks in case a client seeks to avoid any risks, or a balanced portfolio of stocks and bonds.
However, the sector is progressing rather slowly in Russia due to a limited choice of robo-advisors, the main reason being a complicated process of obtaining accreditation of financial advisors, who cannot advise clients on investment issues without a required permission. This hinders fintech progress in developing specialized robots.
What awaits fintech in the near future
In 2022, Russian lawmakers will begin working on the legislation to implement the digital ruble, with 12 major banks to be involved in the initiative, which will allow for transactions at unified rates, fast access to e-wallets, and the use of smart contracts.
The changes will take place not solely in Russia. The European Central Bank has launched an investigation phase of a digital euro project, while the US is planning to introduce a currency for electronic use, although slightly lagging behind other countries in the development stages.
Another trend is fintech marketplaces. The initiative was launched in 2017 by the Bank of Russia, with opportunities for full implementation of the Marketplace Project emerging in 2020. The platform offers financial products from different companies available to users 24/7. Similar projects are available in other countries as well, such as California’s Prosper Marketplace, one of the oldest marketplaces that has been operating since 2005.
Despite fintech sectors in Russia, Europe and the United States developing under different models, there are many similar trends. In today’s era of global digitalization, countries need to constantly make efforts to keep financial technologies at a similar level as this is exactly what affects opportunities for future e-commerce with the use of digital currencies, exchange of experience, and joint innovations in AI and robotization.
By Christina Firsova