Romania: Fintech

As in any other country, the Romanian payment industry is under the strict control of the National Bank of Romania (NBR) and the Romanian Financial Supervisory Authority (ASF). Herein, any entity that plans to offer payment services or a feature or service strongly connected to the payment process must firstly obtain the NBR or ASF’s approval or licence.

Considering that the European Directives are not directly applicable in the member states, the Romanian payment industry is mainly regulated by the provisions of the Law no. 209/2019 which clearly established the activities that must be authorised, the authorisation process and the service providers’ liability.

On a secondary level, the National Bank of Romania monitors the effectiveness of payments law and is constantly adopting relevant regulations also in view of following the position of the European Central Bank and of the European Central Authority. Please note that the provisions of the NBR’s decisions and orders are mandatory for all entities directly or indirectly involved in the payment process.

Additional to the traditional legislative framework, Romania has implemented primary law in line with the directions and thresholds set out through Directive (EU) no. 2015/2366 on payment services in the internal market (“PSD2”) since 2019. It shall be noted that further EU regulatory acts regarding the subsequent effects of PSD2 have naturally found their applicability, such as the Commission Delegated Regulation (EU) 2018/389 related to regulatory technical standards for strong customer authentication and common and secure open standards of communication.

Considering that PSD2 extends to payments rendered outside the EU in the currency of any member states, it must be pointed out that a series of normative acts is strongly regulating the terms of intra-Community payments. Moreover, Romania has put in place consistent and cross-functional legislation packages for creating a solid legal framework for many activities, such as:

• Law no. 209/2019 regarding the payment services;
• Law no. 210/2019 regarding the activity of issuing electronic money;
• Government’s Emergency ordinance no. 193/2002 regarding the introduction of modern payment systems, with subsequent amendments and additions;
• NBR Regulation no. 3/2018 regarding the monitoring of financial market infrastructures and payment instruments;
• NBR Regulation no. 6 of 12April 2022 regarding the framework for conducting TIBER-RO cyber resilience tests;
• NBR Governor’s Order no. 4/2015 regarding the operation of the TARGET2 payment system – Romania;

A detailed list of the main regulations applicable to the payment industry is constantly updated and published on the by NBR on its official website [1].

[1] https://www.bnr.ro/Legislatie-aplicabila-instrumentelor-de-plata-si-sistemelor-de-plati-3108-Mobile.aspx

At the EU level, payment services are regulated, in the first place, by legislative acts such as PSD2 and Directive 2009/110/EC regarding the activities of electronic money institutions (“E-money Directive”). These set out the prerequisites for providing various payment services without the need of pursuing a regular banking licence. Thus, payment services may be provided by both credit institutions (i.e., banks) and payment institutions or e-money institutions

Furthermore, albeit under the PSD2 derogation regime, payment services except for the case of ‘payment initiation services’ could have been provided under certain conditions even in the absence of a PSP license (i.e., payment service provider), Romanian regulators set forth a more restrictive approach, in line with other member states. Hence this derogation applies only when payment instruments are used for the acquisition of (i) goods and services traded at a retail level by their issuer / (ii) goods and services from a chain of vendors affiliated or similar to the issuer / (iii) a single type of goods or services or a limited number of goods or services that are functionally directly interdependent. An exemption mechanism is also enforceable in case of small payments rendered by or from providers of electronic communications related to their networks or services.

However, a NBR assessment is required prior to the commencement of an unlicensed payment service, irrespective of the exempted activity in question.

As far as the E-money Directive is concerned, it must be stated that Art 9 (‘Optional exemptions’) was not yet enforced in Romanian law.

The freedom of establishment system shall be considered, in the second place, as the empowerment for providing payment services is generally recognized within the EU space. Thus, based on the EU passporting mechanism, entities which are licensed in other member states as PSP are therefore allowed to operate in Romania and vice versa, contingent on a notification of and the mandatory prior assessment conducted by the national bank, exactly like in the case of Revolut.

In Romania, payment services are offered by 33 PSP Romanian licence holders and 269 EU companies that notified BNR for offering payment services in Romania. Despite that in Romania, there are only 2 EMI licence holders (Twispay and Orange Money) many other EU Electronic Money Institutions such as Revolut, Revolut Business, BinancePay, Monzo or Wise are offering payment services in Romania.

Romanian regulator has configured the field of modern payments in 2002, and since 2015 cash payments over €1000 and in some cases over €2000 are prohibited. Starting with the proper regulation and implementation aided by the NBR, digital financial services have overshadowed the traditional way of using cash.

Reportedly, the most popular instrument for current payment is contactless credit or debit card, followed by mobile banking app and by banking from browser right after.

The aforementioned applies both as to general retail and to online shopping, and is especially outlined in urban areas. Furthermore, the availability of alternative payment solutions as, for example, PayPal, Masterpass, Paysafecard, and Skrill, but also payment-type crypto-assets is expected to further support e-commerce growth in the coming years.

As pointed out through government official reports, the Covid-19 pandemic has entailed an accelerating shift from traditional to electronic payments. It shall be further added that the increased interest for digital currencies experienced in the near past in Romania, as well as the propensity of DeFi dApps, which usually require bank or open-bank transfer orders, is expected to enhance this trend.

Forced by the Covid Pandemic to reduce costs, traditional banks promoted online payments by introducing (i) multifunctional ATMs and (ii) different prohibitive measures such as: closing the cash desks and increasing the commission charged for cash deposits and withdrawals.

Unfortunately, restricting cash operations and without having user-friendly banking apps, banks directly influenced the adoption of the non-bank fintech’s which were able to offer the same services in a more attractive way in terms of costs and user experience.

The concept of open banking was developed in Romania especially after the enforcement of PSD2. Until then, banks were showing certain rigidity or conservatism in the transmission of financial information. Through this directive, which precludes the monopoly of banks over such data, fintech companies have the opportunity to develop and innovate in the market, implicitly transforming the financial system through technology.

Nevertheless, PSD2 regulatory framework makes it mandatory for the banks to open access to their own banking data through APIs, enabling secure connectivity and integration to any kind of secured digital application, provided they observe the same safety and security requirements.

In 2019, Romania became one of the few countries in the CEE region with two banking players driving adoption of open banking in the local marketplace. For example, CEC Bank, one of the largest retail banks in Romania, has partnered with Finqware in order to become one of the first banks to commercially launch features based on open banking in the CEE region. Furthermore, the current market leader, Banca Transilvania, has launched a similar feature in September 2020.

The Romania-based software company Smart Fintech has announced its NBR authorization on both segments of open banking with respect to the SmartPay application which facilitates direct payments for the Romanian leading banks (BCR, BRD, ING, Banca Transilvania, Raiffeisen, First Bank, Alpha Bank, CEC Bank, Garanti Bank, Libra Bank, OTP and Unicredit Bank).

Statistics have showcased the country’s readiness levels to adopt open banking for quite some years already, since the ever-growing proportion of individuals using the internet for ordering goods or services. Hence, the Mastercard’s ‘Open Banking Readiness Index’ for Romania is shown through the almost 100 licensed AIS in Romania in the last year, with major banks providing or contracting it today. According to Statista, online banking penetration in Romania was 15% in 2021.

In most cases, the provision of financial services involves the completion of the Know-Your Customer (KYC)/Anti-Money-Laundering (AML) process, respectively the processing of a huge package of clear personal data and indirect personal information arising from the financial activity carried out by each user.

The EU Regulation no. 2016/679 regarding data protection (“GDPR”) became effective and was implemented by means of special measures put in place through the national law, which does not impose overriding obligations for processors as compared to GDPR. Therefore, the procedures and guarantees enacted pursuant to GDPR were carried out during the last years without additional impediments from the part of most major players, and the observance thereof has now become mostly a common practice.

On a different note, special regulations in certain areas including crowdfunding (EU Regulation no. 2020/1503 and Romanian Law no. 244/2022) and payment services (PSD2) impose particular diligences with regard to requirements for processing clients’ personal data. However, since their legal enactment is clearly in line with the EU law, it results that financial providers would not be exceptionally hindered as long as no personal data is operated outside the EU.

Providing financial services is strongly connected with the KYC/AML process which involves the collection and process of a huge pack of clear personal date and also indirect personal data that reveals from the financial activity performed by each user.

The implementation of AML and KYC, however, has caused a deterrent effect from the part of consumers and businesses alike, yet proper education of the public (see also, the National Strategy for Financial Education), which becomes increasingly necessary as the world is facing an imminent recession, is expected to provide higher levels of comfort and integration in that respect. This approach is also supported by incentives in rights such as that afforded to data subject as per Chapter III of GDPR (e.g., right of access, erasure, data portability or the right to object).

Meanwhile, albeit FinTech requires the processing of personal data on a broader scale, it shall be stated the industry is also an important beneficiary of the privacy enhancing technologies such as k-anonymity, e-differential privacy, homomorphic encryption and hashing.

In the future, EU regulations and primarily the Data Act once enforced is meant to improve the business models based on data access and portability rights. This shall ease the transfer of data to and between service providers in view of encouraging large scale participation in the data economy. Therefore, positive outcomes are expected to reflect also as far as the provisions of financial services is concerned.

Romania has undertaken the measures required by the European Commision under the FinTech Action plan  to ensure regulatory testing facilities and consistent monitoring practices. A step in that respect was the authorisation afforded to the Financial Supervisory Authority (“FSA”) as to guide and monitor the evolution of FinTech and which, at the moment, conducts both the FinTech and the InsurTech Hubs.

In what financial support is concerned, Romanian regulators are carrying out the obligations of duly allocating both the EU minimis aid scheme and the Recovery and resilience plan for innovation in the financial sector. Furthermore, Romania has implemented tax incentives, as pointed out under Q8, and has facilitated the access to finance for FinTech start-ups.

FinTech associations and initiative groups have also found assistance from the part of Romanian institutions, to the extent permitted under the dedicated regulatory framework, considering they are regarded as an important factor in view of challenging the status quo in innovation.

Albeit a sandbox regulation has not been adopted yet, it shall be pointed that recent government plans for Romania stress out the importance of fructifying this fintech momentum, in view of establishing the most appropriate legislative environment for promoting the digital development of the society.

A healthy legal framework based on a solid technical study can create a risk-free fintech environment in Romania. Risks would be avoided in a scenario whereby Romanian regulators set out a strong and thorough minded legal framework. However, absence of regulation raises multiple issues. One of them is represented by the menace of incentivising rug pull operations orchestrated by scammers.

Therefore, by way of extension, one could think of the situation in which Romania may become a proper new hub for unlicensed or non-licensable projects would scare the general public to the extent of diverting many people’s interests as to adopting ones of the most innovative FinTech solutions.

Furthermore, regulatory gaps are expected to create a non-conventional space for bypassing local regulations from FinTech flagship countries like Estonia. This is due to the well-known fact that unlicenced or non-licensable projects are constantly looking for unregulated jurisdictions.

The incidence of this kind of risks can even be followed by EU institutions imposing incremental penalties on Romania.

Nonetheless, the consumers’ different levels of vulnerability depending on the degree of maturity of the financial market of each member state and the level of knowledge necessary for the fruition of FinTech services are taken into consideration by the Romanian regulator, who is seeking to minimize the aforementioned risks and to cooperate with authorities appointed by the EU.

Moreover, the consumers’ different levels of vulnerability depending on the degree of maturity of the financial market of each member state and the level of knowledge necessary for the fruition of FinTech services are taken into consideration by the Romanian regulator, which is however seeking to minimize the aforementioned risks.

In Romania there is no specific tax incentives meant to encourage fintech investments. However, Romanian regulator has created important tax incentives for the entire tech industry, which has a direct positive impact in the fintech industry such us:

• No income tax for developers;
• Only 1% tax rate on income of the fintech companies having revenues registered in the previous year up to €1 million;
• No tax on profit until the first 10 years of activity for companies which carry out innovation, research and development activities;
• Tax exemption granted to members of research-development and innovation projects;
• Operations carried out within the research-development and innovation projects are not included in the scope of VAT, provided that the research results thereof are not transferred to another person.

As far as other indirect incentives are concerned, the innovation start-ups were recently exempted from income tax on salaries and assimilated revenues, which entails a reduction of 42% in payroll taxes. Incentive measures were also taken for consolidating regular companies, such as the reduction of up to 15% of the due annual profit tax for the period 2021–2025; the deduction of adjustments for impairment of uncollected receivables increased to 50%; and the compensation of tax losses of companies belonging to the same group, which now results in owing profit tax only for the net taxable profit obtained at the group level (fiscal consolidation).

Additionally, equivalent tax incentives apply to revenues deriving from certain intellectual property rights.

Notwithstanding the above, regulators have pointed out that the fintech field is one of the main beneficiaries of the de minimis aid scheme for supporting SMEs in order to carry out processes for the development of innovative conceptual models in the fields of intelligent specialization.

Statistics show the financial services offered by fintech companies, grouped into 4 categories: digital payments (at POS, standard electronic commerce devices or new payment gateways that use biometrics to approve payments), personal finance (investment funds, overseas transfers), alternative loans (Crowdlending – for business or Marketplace Lending – for individual consumers) and alternative financing (crowd investing and crowdfunding).

Nowadays one of the hottest topics in EU and in Romania also is around the crowdfunding industry which since this year is fully regulated at the EU level and it seems to become attractive for institutional investors.

The market’s largest segment is Digital Payments with a total transaction value of almost $9 billion in 2022 and almost $1 billion in personal finances. The other categories of services are too little known to the general public, with few users choosing to manage their finances through fintech services. The services of Alternative lending and alternative financing are very little known in Romania, most of the clients preferring to resort to the financing services offered by the classic financial institutions.

According to the findings of ROTSA’s study (Romanian Tech Startups Association), ‘The Impact of COVID-19 on Romanian Tech Startups’, Fintech companies and banks have reported a 70% increase in the use of digital, mobile, and cloud platforms, which explains why the Neobanking segment is expected to show a revenue growth of 43.1% in 2023.

Even though the banking sector is still dominated by traditional banks, Romania has so far demonstrated that is ready to embrace immersive fintech solutions.  In this respect, the Romanian fintech industry has adopted various projects aimed at creating a cashless society, such as Revolut or MobilPay, and has also witnessed the outbreak of Romanian crypto-to-crypto payment applications.

Given the COVID-19 pandemic context in 2020 and 2021, the entire state administration had to be digitalised, so that many innovative technical solutions began to replace the traditional methods used until then. The national market has made steady progress from offering only cost-efficient services to offering cost-efficient services that are also high quality. Thus, Romania earned its place among the perfect space for entrepreneurs, investors and foreign companies to develop their own innovative fintech ideas. Romanian market is very responsible to new fintechs and apps having the highest download and adoption ration in EU. At the same time, this habit of irresponsible consumption and adoption based on excessive curiosity and without any security check is also followed by hackers.

Especially in the last five years and as outlined within the local FinTech Hub, the Romanian tech market is known for offering many valuable products and solutions in the benefit of the relevant industries, such as crowdfunding (SeedBlink), blockchain (Elrond), crypto (Sense4Fit, WAM Coin), financial (MobilPay), banking, e-commerce, real estate, energy etc.

Regarding Romania’s strength points, extremely highly skilled IT developers with high professional skills and yet cheaper costs compared to developed countries in Western Europe can attract international fintech companies to open development centres / services on the local market. This resulted in the fact that the IT sector witnessed a high degree of adoption of new technologies integrated both in new and existing software products.

Reportedly, the levels of foreign investments in Romania are relatively high due to the comfortable degree of investors’ confidence in the growth potential of the market. In parallel, the central state administration encourages the development of local start-ups in various economic fields, the technology and innovation part benefiting from substantial financial and even government supported incentives.

Considering its status as an EU member state, Romania is centred on the principle of the free circulation of persons within the European space. Furthermore, it continues to implement the necessary measures in view of being allowed to join the Schengen area.

The conditions of working and/or studying in Romania were therefore eased in case of citizens pertaining to another member state, by way of measures meant also to enhance the access of FinTech companies to the relevant labour market. In this case, a right of residency of 6 months shall be firstly and easily afforded to EU citizens for working purposes in Romania, which remains valid even in a period of temporary incapacity for work or if that person becomes unemployed.

Another favourable measure is given by the fact that once a long-term residence permit is obtained, the concerned employer will be granted with a series of important social rights, such as access to the pension and social allowances public system. It shall be also noted that FinTech related jobs can be quite easily fit in one of the classified occupations in Romania in order to secure such rights.

For citizens outside EU and non-residents, the more restrictive prerequisites for living and employment shall be passed with the General Inspectorate for Immigration by observing the yearly immigration cap. Nonetheless, it must be stated post-communist Romania has never adopted anti-refugees or otherwise exclusionary policies. Of course, having an already resident spouse or family member shall ease the conditions for living and accessing the employment market in Romania, expect during and for the sole purposes of the Covid-19 pandemic.

Romanian regulators have attempted to put in place all the requisite solutions for easing access to talent within the most demanded industries.

Economic studies have revealed that a particular strength in Romania’s FinTech market is represented by the software development centres and skilled workforce in IT. It is a well-established fact that Romania has shown great talent in the space of information technology, with IT teams winning important international contests and being employed up to the top in ones of the most prestigious technology companies throughout the world.

However, one gap would be represented by the risk of finding a too older population active from the total number of employees. To tackle the issue of youth unemployment, a set of important financial incentives was adopted for stimulating the hiring of young individuals, in general and of university graduates and especially IT workers, in particular.

During the Covid-19 pandemic, Romania has adopted measures which contributed to the adaptation of the workforce both mentally and technologically to the challenges that the FinTech industry may pose.

Whilst the interest in digital working has significantly increased, as documented through WEF’s The Future of Jobs Report, combined with the tax incentives detailed under Q8, it clearly results that the FinTech industry plays an important role on influencing the immigration policy in Romania, whereas other EU countries generally entail higher costs per pay check.

Intellectual Property is strongly protected in Romania, most of the breaches being qualified as crimes as well.

FinTech companies can rely either on legal provisions that generally offer a high level of protection, or on contractual clauses that have the role of allowing parties to establish (under certain conditions) special obligations and also to clearly provide the parties’ liability under specific scenarios.

As in any other industry, the following IP rights are relevant in what concerns FinTech: trademarks, copyright, patents (for innovative hardware systems) at a certain level industrial designs and, of the utmost importance, trade secrets and the protection of know-how.

• Patent registration should be carefully considered for innovative new hardware solutions prior to any product disclosure. The element of novelty is crucial to patentability, any disclosure being sufficient to forfeit the right to obtain registration;
• Copyright is regulated throughout Law no. 8/1996 on copyright and related rights, with a special focus on computer programs vested with wide applicability. Notably, in Romanian law, copyright of the computer programs pertains to the employer of the developers in question whenever parties do not provide otherwise.
• Trademarks are protected by Law no. 84/1998 regarding trademarks and geographical indications which plays a significant role for FinTech companies that manage valuable financial assets, in order to present guarantees of trust to their clients and secure their position within the relevant market;
• Industrial design or design protection is covered by Law no. 129/1992 and the implementing regulation thereof and it represents a valuable asset, especially in innovative and borderless fields such as FinTech, wherein an impressive number of copycats are despising the merits of originality in order to illegitimately benefit from such induced misguidance of the naive customers.
• Trade secrets and the protection of know-how are widely covered in the Romanian legislation, with general provisions being laid down in the Civil Code. As a general rule however, relevant companies usually make use of IP clauses comprised within agreement concluded with providers, personnel and sometimes even with their customers.

In the current legal framework, Romania does not have a dedicated regulation for the new and emerging technologies. Therefore, the specialized practitioners such as lawyers or tax consultants had to identify similar concepts in national legislation in order to find effective solutions.

• However, isolated provisions achieved to regulate the main social relations in the blockchain and cryptocurrencies industry, such as:
• fiscal regulations applicable to individuals, respectively the method of taxation of the income obtained by the natural persons from cryptocurrency activities;
• implementation of the fifth directive on combating money laundering and the financing of terrorism with regard to cryptocurrency service providers;
• from the perspective of criminal law, ownership of cryptocurrencies has been strengthened by sanctioning crimes such as theft, robbery or empanelment that are committed in connection with cryptocurrencies as well.
• in absence of a specific regulation, national agencies such as The National Agency for Fiscal Administration of Romania have begun to develop guidelines for the creation of a solid working framework. According to the Agency, NFTs are defined as “a unit of unique data from a computer ledger called blockchain. NFTs correspond to files of various formats, depending on the nature of the process creation”.

Romania has not adopted a regulatory framework dedicated to ICOs yet. Nonetheless, specific regulation is expected to be enacted in the future, especially through the already proposed Regulation on Markets in Crypto-Assets (the so-called “MiCA Proposal”).

Law no. 129/2019 to prevent and combat money laundering and terrorist financing, as well as to amend and supplement some normative acts has been enacted in Romania following the AML 5 Directive, which defines the term of “virtual currencies” in order to allow and partially regulate the transfer of cryptocurrencies in Romania.

Furthermore, there were research papers published in journals dedicated to Romanian law as to the legal treatment applicable for different types of crypto-assets, also as to initial coin offerings.

Additionally, the differences between ‘investment-type’ and ‘utility-type’ crypto-assets can be defined by considering the Romanian actual legislation.

In absence of a specific regulation the acquisition of the utility tokens, respectively those that can be used only to access a service provided by the issuer or to buy a product created by the issuer is qualified as a pre-acquisition of the above-mentioned services/goods. On the other hand, issuing or acquiring security tokens is strictly forbidden without obtaining the prior approval of the Romanian Financial Supervisory Authority.

The Romanian Digitization Authority announced that the rules for applying the provisions of the Law. Not. 129/2019 on the authorization of cryptocurrency service providers (ICO, ATM, exchanges, Wallets) which should have been issued 2 years ago, will be published for public consultation by the end of this year.

Based on the relative notoriety of the ongoing projects, such examples of Romanian projects can be referred to as follows:

• Brand Minter (NFT minter for brands)
• WAM (play to earn)
• Sense4Fit (fitness play to earn app)
• Elrond (blockchain and decentralised exchange)
• Tokero and Coinzix (cryptocurrency exchange)
• Xclusiverse (real estate intermediation platform)
• Humans (blockchain and AI related project)
• Ludo (NFT multichain aggregator)
• Genius Assets (marketplace for digital and physical assets)
• Modex (blockchain infrastructure)
• Lanceria (freelancing platform)

Therefore, it shall be noticed that Romania can be already regarded as a blockchain innovation hub, wherein a wide spectrum of outstanding projects is currently developing or has even reached worldwide recognition, in areas such as DeFI, GameFi, NFTs, whilst other blockchain economic models such as Fit 2 Earn are shaping their tips starting with the Romanian market.

Nevertheless, all top 50 projects and cryptocurrency exchanges are present in Romania. For example, Binance and FTX have more than 4 million Romanian users, and one of the biggest validators in the Cosmos Network is based in Romania.

According to the Digital Economy and Society Index Report for 2022, with approximatively 1%, Romania has the lowest uptake rate of AI adoption among the EU states. However, it was repeatedly reported that during the last two years Romanian financial institutions and entities have increased the pace of AI adoption.

A 2021 study revealed that approximately 30% of the licensed financial entities in Romania are in the process of implementing AI and machine learning in view of levelling up their management of anti-money laundering compliance. Transilvania Bank is a leading bank in Romania that constantly aims to implement the latest technologies, including AI, to offer its customers the best experience. Anticipating that AI algorithms used for internal operations are secret for security reasons, Banca Transilvania announced that their online customers are interacting with two chatbots built with the Azure Bot Service on Microsoft Azure since 2019.

The industry benefits from the support of a dedicated Insurtech Hub organized by the FSA as of 2018. This hub brings together renowned IT companies with quite the most influential insurance companies in Romania. By duly making use of the possibilities thereby granted, new technologies are going to find their way into this business in an ever-increasing pace whilst legal uncertainties shall be easily prevented.

In terms of development so far, one shall note that even before the commencement of InsurTech Hub’s activity, namely in 2014, an important Romanian insurer has introduced a completely digital service for identifying and reporting vehicle damages.

Since 2017, a Romanian insurance company has implemented an artificial intelligence solution entitled LifeBot for managing its client relation services. That same year, telematics technologies started to be present within the Romanian market and have impacted the sector of motor liability policies mostly for improving the damage assessment processes and streamlining the associated costs.

Notably, more than three ago an Austrian insurer well-accustomed in Romania has deployed robots in order to automate its internal processes for reasons of ensuring security requirements, protecting sensitive data, as well as guaranteeing full visibility and control. Henceforth, other insurers have been introducing similar technologies with a view to avoid data errors as much as possible.

Agrobusiness has also recorded a certain level of intelligent platforms integration.

More recently, under the system based on freedom of establishment, a Greek company (Hellas Direct) has announced its entry into the Romanian InsurTech market with competitive prices and innovative services.

Without any doubt the biggest trigger for the InsurTech industry was the COVID pandemic which forced the insurance companies to invest in technology and raise the bar in this industry.

Statistics point out that the non-mandatory insurance policies have generally found low echoes with the Romanian customers. Therefore, motor liability policy is definitely the most demanded form of insurance. In this area, telematics stand as the technology which have kept gaining ground and soon became a customary topic in the business, as the Competition Council clearly outlines, followed by the ongoing adoption of AI technologies.

Nonetheless, considering that the Covid-19 pandemic has intensified the trend towards digitalization, changes are expected to not be waited for long before they will shock the industry once again, as innovation plays a day-to-day mandatory part in this business.

Fintechs were initially only start-ups bringing competition to an old system and disrupting the traditional banking business by offering digital and personalised solutions.

Incumbent financial institutions started to realize that because of their internal inflexible procedures, they cannot compete with the Fintech’s freedom for exploring and implementing the new technology. Thus, the smartest approach was to organise thematical hackathons and incubation programs for Fintechs aiming to identify and acquire a ready to use product, especially considering that the theme of the program is established by the organizer based on his interests.

On the other hand, during the supervisory and incubation process, the Fintechs are using the services provided by their investors (Incumbent financial institutions).

Many fintechs and existing financial institutions have realized the need and mutual benefits of a collaboration to remain or become attractive to their customers, such as Revolut, TransferGo or Wise who use Libra Bank’s services to offer customers IBAN accounts dedicated in RON.

By collaborating Fintechs are easily meeting the regulatory requirements, Incumbent financial institutions are transferring the risk of the Fintech and both are maximising customer experience and revenues.

COVID Pandemic and PSD2 forced the incumbent financial institutions to rapidly implement new technical solutions which determine them to develop, acquire or at least make available the necessary technical and financial resources for fintechs which are developing the required technical solution. A number of incumbent financial institutions (including both banks and insurance companies) are actively involved in running fintech programmes, Hackathons, incubators, or start-up accelerators.

The larger banks have over the past few years developed their own fintech products such as through the introduction of mobile banking and digitising the customer onboarding process. This has also included making upgrades to internal systems to provide simpler access to information and services. Banks and other incumbent financial institutions carry out their own fintech development, especially regarding online availability and customer experience.

In addition, many of them have implemented innovation programmes consisting in the development of incubators or accelerators aiming at spotting the most promising start-ups and projects, giving them the environment to develop their business, keeping an eye on new financial technologies, sometimes implementing their solutions internally, and investing in them such as: BCR-InnovX, iXperiment (the first accelerator dedicated to high schools), Elevator Lab or Spherik Accelerator.

In Romania, the disruption has occurred in recent years as consumers become more comfortable using most efficient digital services where the transaction can happen instantly and without the limitations imposed by traditional banking services.

The most representative example of fintechs disrupting the traditional financial, payments and insurance system in Romania are contactless mobile payments service providers (Apple Pay or Google Pay) which are daily used by every smartphone holder and Revolut.

After the success of this project, many financial institutions begin to develop new initiatives around alternative financing. Thus, the emergence of the project Revolut in Romania has pushed the traditional financial institutions to develop a digital strategy and new capabilities to remain relevant.

Nevertheless, as undeniable strike in the fintech industry was done by the cryptocurrencies’ adoption as a conventional means of payment.