FinTech Innovation in the Western Balkans: Policy and Regulatory Implications and Potential Interventions

Abstract

Technology-enabled financial and regulatory innovation is still in early stages of development in many countries and regions globally and this is also the case in the Western Balkans. As such, the limited empirical data makes a thorough impact assessment challenging. Beside desk-based market, legal and regulatory research, this study is primarily based on semistructured interviews with 13 regulatory authorities in the Western Balkans1, around 80 individuals working in senior positions in the financial sector, as well as other subject matter experts from the development and policy sectors within the six jurisdictions covered in this study. Where possible, the research team conducted multiple interviews to gather data from multiple sources, verify claims, and mitigate sample bias. 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. Key findings • 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.