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Fintech Innovation in the Western Balkans

Policy and Regulatory Implications & Potential Interventions

Ana Odorović, Grigory McKain, Kieran Garvey, Emmanuel Schizas, Bryan Zhang, Philip Rowan and Tania Ziegler.

Technology-enabled financial and regulatory innovation is still in the early stages of development in many countries and regions globally and this is also the case in the Western Balkans. Working with the World Bank, the CCAF conducted research into the fintech ecosystem within six jurisdictions in the Western Balkans. The findings are meant to be an input to the regional financial diversification trust fund managed by the World Bank.

Highlights from the report

  • The financial services industry in many geographies is transforming rapidly, driven by innovative technologies, actors and activities. This offers consumers and MSMEs improved service quality and product choice, as well as increased access to finance and lower costs. However, this has to be balanced against new risks posed by digital-only providers, e.g. data/cyber risk and use of unproven corporate governance structures.
  • In the Western Balkans, despite high growth in the use of card and digital payments, there remains unexplored potential for other fintech services due to high mobile and internet penetration and a skilled IT workforce. In order to explore these opportunities further, the region will need to address limited access to capital and finance, high cash use, low access to payment and information systems, and regulatory barriers, amongst others.
  • There is moderate to high market concentration in the financial sector, which limits the levels of competition and innovation. Given the high levels of foreign ownership in the region’s banking sector, innovation at a local level is lagging. This means that certain services, e.g. payments, remain expensive for consumers and MSMEs and eCommerce is underdeveloped.
  • Regional regulatory frameworks are not explicitly adapted to the fintech sector. This can lead to a lack of certainty for firms with atypical business models wishing to operate in the region.
  • This report presents some indicative recommendations to regional regulators and policy makers and advocates a need for proactive, pre-emptive regulatory action. These include increasing stakeholder engagement, collection of industry data, improving access to finance for MSMEs and consumers and the provision of regulatory clarification for non-bank financial services firms.