As the world becomes increasingly connected through digital platforms and technologies, the financial industry is forced to adapt to the changing demands of consumers, businesses and other key players in the sector. The story, however, does not end here, but merely begins.

Digitization is becoming a necessity. This is clearly evident from the current chaotic process of issuing personal documents that the citizens of the country need for various financial institutions.

In the midst of such a slow transformation, one cannot help but wonder how well are the key players in the financial sector in Macedonia prepared for what follows.

While some financial institutions have accepted many of the challenges that this process brings, others are still struggling to keep up with the pace imposed by various technologies, as well as the unstoppable development of artificial intelligence.

Thus, this discrepancy between financial entities manifests either as progress for some, or stagnation for others. As a result, deep implications for their businesses become self-evident.

Although there is a huge interest in digitization and this is a topic among all financial institutions, the fact of the matter is that there’s no real progress being made. One comes across piles and piles of repetitive documents just for a personal data update in any of the Macedonian banks.

Digital products versus queuing in line

Consumers are also affected by the pace at which innovations are adopted in the sector – it is the younger generations who especially value the availability of digital products and require banks to adapt quickly and actively engage in digital transformation.

According to one of the oldest and largest banks in Macedonia, Komercijalna banka, the last two decades have witnessed the emergence of technologies that completely change an industry, especially the way products and services are developed, the channels through which they are available and how they are utilized by customers.

“Today, legal entities have the opportunity to create electronic identification using the OneID application, which allows easy, secure and fast access to more banking products and services, from anywhere in the world, and at any time. With that, customers have the opportunity to remotely open an account, apply for a debit card, update data, as well as activate Internet Bank. According to the dynamics of the implementation of these innovations, it can be concluded that the banks in Macedonia are pioneers in the digital transformation of the financial system,” Komercijalna banka told IT.mk.

The development of these technologies, on the other hand, requires greater agility in the implementation of innovations, education of employees who create the offer of financial services, but also education of customers about the benefits of using digital channels, products and services.

“In addition, it is necessary to establish adequate processes and systems for managing and minimizing risks in the digital space. We should also take into account the habits of customers in our country, as well as the limits imposed by the regulation, which is also in the process of adapting to digitalization,” Komercijalna banka added in a statement.

Regarding the regulations, the National Bank of Macedonia (NBRM) points out that in the last few years, they have been working on several regulations that will aid the development of the fintech (financial technologies) sector, in order to make it easier for the industry to cooperate with new players on the market – fintech startups and companies that work implement these technological advancements.

“Significant progress in terms of regulation was achieved with the Law on Payment Services and Payment Systems, which was implemented at the beginning of 2023. One of the most important benefits of ZPUPS is the opening of the market for new providers of payment services, as well as the expansion of the set of payment services offered on the market. So, in addition to banks, the clients can take advantage of other payment institutions, such as savings banks, institutions for issuing electronic money, as well as the fintech sector – the service providers for initiating payments and the service providers for account information,” the NBRM explains.

According to them, the new law creates conditions for innovation, competitiveness and efficiency when it comes to payments, as well as implementing the concept of the so-called “open banking”, which implies the establishment of standards for open and secure communication between the fintech sector, customers and banks that need to open and adapt their banking systems. This is the law that also paves the ground for the acceptance of services such as Paypal and Stripe.

“The entry of the fintech sector into the market offers particular benefits for customers who will use the services of payment initiation service providers and account information service providers. In the coming period, the implementation of the recommendations from the Fintech strategy for financial regulators is expected to have a significant impact in the direction of further support for the development of the Fintech sector,” the NBRM emphasized.

For Steliana Moraru, Chief Operation Officer at OTP Leasing Romania, fintechs can be either partners or good competitors for banks, since they are pushing them to become better in every way.

“From my point of view for the future, as a financial company you either develop on your own, and you start thinking as a software company, more of a risk taker, or you can start by partnering with different fintechs. In the future I don’t see financial companies and leasing companies just being by themselves, but rather working with different partnerships and building ecosystems. Our clients expect a certain experience and if they are used to it with another application where they can do self-service, they have chatbots and everything is paperless, we cannot say “oh, you need to come and sign all those papers and documents” and so on,” Moraru explains.

Artificial intelligence and its impact on financial processes

The Macedonian startup FinqUp, which develops digital solutions for the financial industry based on artificial intelligence, is one of the pioneers of the fintech sector in the country.

According to Dime Galapchev, founder and CEO of FinqUp, AI has the potential to make a much bigger impact in the long run, although he recognizes that, when it comes to the domestic financial sector, AI is still in its infancy.

“Considering that this is a new technology, it hyper-automates and improves a whole spectrum of processes, from humanoid avatars for customer interaction and support, and their easier access, to fraud monitoring and analyzing entire markets. In other words, artificial intelligence in the world and in Macedonia has already redefined most existing financial processes,” says Galapchev.

However, are domestic financial institutions willing to use such digital products? For Galapchev, there are several challenges.

“I believe the main challenge comes down to having a small market and lacking proper financial literacy. The only way to change this is to invest in local partnerships between innovative fintech companies and traditional financial institutions,” he says, adding that in the last few years, Macedonia has been gradually introducing regulatory changes in order to create a favorable environment for digital innovation and the adoption of technology in the financial industry.

“Although the process could be faster, significant progress has been made in aligning with European standards, which is a positive signal, both for domestic and foreign investors. That is why it is important to start with the introduction of regulatory “experimental environments” (sandbox), which will enable innovative startups to create and test new technologies under the supervision of regulatory authorities,” Galapchev points out.

Digitization as the fourth industrial revolution

In addition to banks and fintech startups, insurance companies are another part of the sector that faces the rapid changes brought about by digitalization. As Professor Klime Poposki, Chairman of the Management Board of Winner Insurance, explains, digitization has the potential to strongly influence almost every industry, in every country, not excluding the insurance industry.

“The insurance business model is seeing rapid changes through and through: from product design, risk-taking and pricing of products, their marketing and distribution, to claims processing and customer relationship management. Examples of digitization are diverse: mobile devices, Internet of Things, telematics, “big data”, machine learning and artificial intelligence (AI), “chat-bots”, distributed technologies (DLT) such as block chain and smart contracts, comparators, robo-advisors, business models based on peer-to-peer and platforms,” Poposki tells IT.mk.

Furthermore, the use of data from sources such as telematics (modern technology that enables the remote transmission of data from moving or stationary objects to other objects or systems) and mobile instruments enable insurers to design and price products based on precise and accurate information about the risks they are taking.

“The development of artificial intelligence and machine learning enables the provision of automatic advice and easier fraud detection. Comparison websites can help consumers by including more information: if they are independent, how to choose a product. As a result, this can make it easier to better understand the products. “New technologies can speed up processes, such as claims management, and can lead to greater efficiency that will reduce overall costs,” Poposki said.

However, while digitization has the potential to benefit consumers, it poses risks that may affect the fair treatment of consumers and thereby conflict with regulatory requirements for the market conduct of insurance entities and the protection of consumer interests.

“There are risks of reduced face-to-face contact, insufficient understanding by the consumer of the product or service and of the service provider itself, security risks and potential misuse of increased amounts of consumer data and potential exclusion for some consumers. The collection of data on policyholders can enable granular categorization of risks that can potentially affect the basic principle on which insurance is based, which is the pooling of risks, and can call into question the availability of certain insurance products, perhaps even leading to exclusion,” Poposki warns.

As a result, while some digital solutions are moving at a slower pace; the dominance of foreign insurance groups, whose parent companies are already in the phase of implementing digital solutions, overcoming certain regulatory barriers (for example the consent of the Ministry of the Interior to accept AO policies in electronic form when renewing vehicle registration), creation of an Insurtech eco system, as well as the willingness to invest in advanced technological solutions by insurance companies and intermediaries are driving factors.

High expectations for some, cause for worry for others

When it comes to digitization, the main challenge for pension funds is the generational and educational level difference of the users of their services, as well as increasing the level of trust in digital tools.

“According to our mentality, we are wary of every change, and digitalization is no exception, especially when it comes to different categories of insured persons,” Triglav Insurance points out.

Triglav believes that while young people expect greater changes and approach that’s similar to European and world practices, older users want an easier and simpler system, without the need to develop and learn new skills in the digital domain.

“Hence, we have high expectations for some, but concerns for others. As we mentioned earlier, the biggest challenge is to grow, to get closer to certain world standards, but at the same time to offer a satisfactory experience to all users,” Triglav said in a statement.

Then, there are those who try to get the ball rolling and make proper changes, such as FinqUp. While Macedonia is a country with a young startup ecosystem, the prerequisites for the digitization of various sectors can easily become opportunities for new success stories.

“As much as this is a challenge, it is also an opportunity for new success stories, not only in the financial sector but everywhere else as well. It is crucial for fintech startups to continue to focus on innovation, as improving any aspect of the financial sector can have significant positive effects. The creation of new solutions that increase accessibility, reduce costs and increase the security of financial transactions contributes to a more inclusive and dynamic financial ecosystem in Macedonia,” Galapchev concludes.

*The article is a collaborative effort with FinqUp

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