Maja Kadievska Vojnovikj is hired as a lecturer at the American College – Skopje. She started her professional career in 2003 at the National Bank of the Republic of Macedonia (NBRM) in the Monetary Policy and Research Directorate, where she held various positions, and in the period 2011-2018 she was Vice Governor in charge of the Financial Markets and Payment Operations Sector. systems. In her sixteen years of experience as a central banker, at the beginning of her career she was one of the founders of the macroeconomic projections of the NBRM. As Vice Governor, she was actively involved in the creation and implementation of monetary policy, in the management of foreign reserves and the balance sheet of the Central Bank. She actively participated in the annual meetings of the IMF and the World Bank and in missions with international financial institutions and credit rating agencies.
For the developments in the Fintech sector worldwide and in our country, the projections and the movement of the regulatory framework, follow the interview with Ms. Kadievska-Vojnovikj:
AFD: What is the role of the Fintech industry in our country?
K.V.: In the world, the FinTech industry has an intensive growth, and in our country it is slowly entering the radar of the financial sector, business, regulators and the general public in general. It is trendy today to talk about FinTech, but I would like to emphasize that FinTech is not a new industry. Technology, to some extent, has always been part of the financial world (eg e-commerce and high-frequency trading platforms), and innovation in financial services is not a new phenomenon. Thus, over the past few decades, innovations in this segment include: credit, debit cards and cash terminals (ATMs) in the 1960s, telephone banking in the 1970s, internet banking, mobile telephony, internet based operators, etc. . The latest wave of technological innovations and their application in finance concerns the application of artificial intelligence and machine learning (AI / ML) algorithms to cloud-based technologies that facilitate the exchange of B2B, C2B, C2C and B2C through application interfaces (APIs), DLT which is a distributed log book technology and smartphones running financial applications.
FinTech industry in Macedonia is present, but I would say still insufficient. The entry of new financial service providers, new innovative business models and technologies that need to strengthen and automate the access and use of existing financial services is limited. The application of advances in technology for the execution of payments, as well as for the transfer of funds, savings, loan approval, investment, insurance, budgeting and financial planning, etc. it is still low in our country. However, this wave has been intensified by the non-banking financial companies that have been growing in the last few years, and through the new model of providing fast loans online, they do not accidentally get the epithet of drivers of the FinTech industry in our country.
On the other hand, the banks in recent years have been striving to fit into the trends of the digital age by investing more in new products and financial innovations. For example, in the last few years we have seen the growth of mobile banking, ie the use of mobile phones through interfaces (Apps) to access banking services. Then, mobile card payment virtualization is also a novelty. In the capital market, financial innovation is a crowdfunding platform that allows companies to access alternative sources of non-traditional financing and fundraising. Investors can use it to trade their shares of startups immediately after the initial stage of investing using blockchain technology as if they were listed on the stock exchange. In the field of payments, in our country we have the opportunity to use the PayPal platform, which is a P2P (peer-to-peer) platform, ie to communicate via the Internet instructions for payment and execution of electronic funds transfers.
AFD: What is the share of the non-banking financial sector in the economy of the Republic of North Macedonia?
K.V.: Banks still have a dominant position in the financial sector in Macedonia, while other non-banking institutions have a low share in the total assets. According to the data from the last Financial Stability Report 2018 of the National Bank, banks participate with 82.5% in the total assets of the financial system, followed by the mandatory pension funds with 10.6%, non-life insurance with 3, 5%, life insurance with 1.2% and investment funds with 1%. Financial companies, despite the high growth rates in recent years, in 2018 have a 0.4% share in the total assets of the financial system. At the end of the first quarter of 2020, the total assets of the financial companies  are around 4.7 billion denars and record annual growth of 44.6%, respectively. Most of the assets (88.4%) refer to the requirements from the private sector, ie the loans granted to the population are around 3.1 billion denars, while the loans granted to companies are around 1 billion denars. Compared to the first quarter of 2014 , the population lending increased by 7.7 times, while corporate lending was 4 times higher.
The rapid growth of lending by financial companies indicates several facts. First of all, the opportunity for the financial intermediation to grow in our country is large. Domestic loans to the private sector are about 50% of GDP, in most banks or about 48% of GDP, while the rest is from savings banks, leasing companies and financial companies. This is significantly below the levels in the countries of the European Union (EU), ie private sector loans in the EU are 142.5% of GDP on average in 2018. Compared to the Western Balkans, the level of domestic loans to the private sector is higher only in Kosovo. This means that there is a need for financial resources. Second, the growth of loans from financial companies indicates the fact that a certain part of the population, part of micro and small enterprises do not have access to bank loans. The reasons are both by the supply side and by the demand side. Thus, when granting loans, banks largely require them to be secured by collateral, whose price is high. In addition to the collateral, banks require a quality credit history, and companies a quality assessment of profitability. In conditions of still high unemployment, unstable income flows, high gray economy, poor corporate reporting, low operating efficiency and financial performance (especially of micro and small enterprises), the prudent requirements of banks are a limiting factor for access to credit.
Therefore, a certain part of the population and companies need alternative financing, despite the fact that it is more expensive, but the citizens know that they will get the necessary funds in a fast and efficient way when they need it most. At the same time, according to comparative measurements and surveys, the loan approval procedures by domestic banks are complex and lengthy. Perhaps this is one of the reasons for the growth of demand for loans from financial companies, whose procedure is simple and with minimal documentation, but still using an advanced system for assessing the creditworthiness of customers. Lastly, despite the low level of financial literacy in Macedonia, the growing trend of lending from the FinTech segment indicates a rapid adjustment of the population and companies to digital trends, when there is a need for finance and access to such products.
AFD: According to the report from the World Bank and an Ernst & Young study, the estimation in 2019 is that 64% of global financial services users chose Fintech, compared to the 16% in 2015. What do you think is the reason for this great growth?
K.V.: The index of acceptance of services of FinTech companies by Ernst & Young in the first year when it was published (2015) increased from 16% to 33% in 2017 and 64% in 2019. The awareness of FinTech, even among those who do not accept these services, is now very high. For example, worldwide, 96% of consumers know of at least one alternative Fintech service available to help them transfer money and make payments. China and India have the highest acceptance (87%); Russia and South Africa (82%); The Netherlands (73%); United Kingdom (71%); Germany (64%); USA (46%).
The growth of the FinTech industry, as well as of any industry, is driven by consumer needs. If one of the main reasons in the beginnings was the difficult access for a large part of the world’s population to open bank accounts, today the motives have evolved. Thus, in 2017, 30% of the recipients ranked the easy access to account opening as the primary motive that directs them to the FinTech industry, while in 2019 only 20% consider it to be their primary motive. What is significant is that the percentage of respondents who as a primary motive for accepting FinTech products and services, emphasize the competitive prices and commissions (from 13% in 2017 to 27% in 2019). Other reasons include access to different and innovative products and services, as well as better experience, better product features and quality of services.
Regarding access to bank accounts, in Macedonia this factor is relatively low, but still leaves room for entry of new providers of financial products and services. According to the World Bank Survey  for financial inclusion from 2017, 77% of the population in Macedonia older than 15 years has a bank account. This percentage varies by category, ie 90% of the labor force (employed plus unemployed) and 66% of the inactive have bank accounts. The young population has a lower percentage of open bank accounts (45%), while the elderly have greater access to accounts (82%). These facts indicate that a certain percentage of the population still does not have access to banks, which is an opportunity for the FinTech industry to enter.
Regarding the prices (interest rates) of the traditional banking products, in the last few years the low levels of the key interest rate (on CB bills) have been transferred to the reduction of interest rates on deposits and loans. However, analyzed in a regional context and beyond, high interest rates are still a limiting factor for more intensive credit demand. In terms of fees, there is still a public perception that banks charge high fees for banking services (account management, money transfers, card operations, personal banker, other documentation, etc.). At the same time, fast money transfer providers have high commissions. These facts also indicate the need to increase competition, ie the opportunity for FinTech companies to enter.
AFD: What are the projections for further growth and where do you see the future of the fintech industry? Do you think that the existing regulations can encourage the development of the fintech sector in our country?
K.V.: When we talk about the growth potential of the FinTech sector in the domestic economy, it is necessary to take into account some important factors.
First, the capacity of the entire domestic financial industry for innovation. The growth of FinTech is largely determined by the entry of foreign companies, which means the transfer of business models that are already present in other countries.
Second, technological development in our country is relatively low, but we have a solid infrastructure for digitalization. Thus, 82% of households in Macedonia had access to the Internet in 2019 (90% in the EU). At the same time, 74% of the population uses mobile phones and laptops to access the Internet, which is the EU average .
Third, the existing regulations limit the emergence of new technological solutions in the financial industry, or complicate the work of existing ones and therefore require revision of all existing legal solutions and implementation of European directives. For example, the absence of liberalization in the payment services industry can be treated as a factor limiting digitalization and economic and market freedom in this area. This is expected to change with the new Law on Payment Services and Systems, which implements several European directives. Furthermore, completing the process of introducing digital identity would significantly facilitate the functioning of financial institutions.
Fourth, the habits of the population are significant. The population in Macedonia mostly uses cash in payments, saves in cash (Denar and foreign currency, in safes in banks and under pillows), has a tendency to transfer funds across the border in cash (inflows in the exchange market) and borrows in cash to friends and relatives. These habits need time and education to change. At the same time, in this direction can help the entry of alternative providers of financial products and services, outside the traditional ones, which would increase the availability and awareness of the population for the existence of new innovative, fast and in some cases cheaper products and services, which have potential to reduce the usage of cash.
Fifth, financial literacy is extremely low, which limits the space for more dynamic acceptance and growth of the FinTech sector. The share of financially literate adults in the total population is low, ie only 21% in 2014 , which is lower than the regional average of 28%, or compared to Germany where it is 66%. At the same time, only 32% of the population in 2019 has basic and above basic digital skills (compared to 58% in the EU ).
Sixth, the demographic structure of the population is unfavorable, ie young people leave the country, and the elderly have resistance to using online applications.
AFD: How will the health and economic crisis from the Covid-19 pandemic affect the development of this sector?
K.V.: The negative effects on the world and domestic economy from the health crisis with Covid-19 will be large and long-lasting, but the crisis has the potential to intensify some trends that were present in the period before it. Digitalization is undoubtedly one of those trends (besides awareness of the importance of climate change, inequality, etc.). This is the moment when it is necessary to take advantage of digitalization in all spheres of society: education, health, public services and the private sector. The digitalization can help the economy recover and strengthen its capacity to deal with such shocks in the future. Within this framework, there is also a lot of room for the FinTech industry. The limiting factors in the domestic economy mentioned above, which took longer to resolve, can be overcome more quickly in a changing environment.
Thus, for example, the tendencies at the beginning of the crisis showed the more intensive use of electronic payment methods by the population in Macedonia. This is just an indication that in the coming period, changes in habits may follow, which would mean easier acceptance of potential FinTech products and services. During the crisis, in addition to the increase in demand for cash and the use of payment cards, the use of digital channels of banks by the population has also increased. According to the National Bank, in March, the number of electronic credit transfers initiated by the population increased by significant 30.3% on annual basis, ie by 21.4% on monthly basis. Citizens especially used computers and mobile phones to make payments. This indicates that the new situation has expanded the perceptions of the population in Macedonia that there are other channels, besides cash and cards, as an alternative to payments. If there were other providers of such services (for payments) from the FinTech industry, there would be a greater flow of money into the domestic economy.
Since the beginning of the crisis, many countries in the world with a developed FinTech sector have used digital payments as a channel to effectively reach out and support the unemployed and those in the informal sector, while minimizing the risk of infection. Others went so far as to provide access to digital services (easing restrictions on Internet access) and financial services (mobile money and electronic fee payment), and some provided subsidies to small farmers through digital platforms. In our country, access to the unemployed, low-income citizens and students was through payment cards, which is far from using secure digital channels to reach the population.
On the other hand, the crisis, which significantly affected the balance sheets of companies and household budgets, in the coming period will only increase the need for access to finance. In that context, the role of banks will be great, but also of financial companies and other non-banking institutions that should be in support of the private sector. If the approach of many countries in the world at the beginning of the crisis was support by restructuring the debts of the private sector or postponing them, in the coming period it will be how to maintain the continuity of credit support. In that direction, many central banks began to relax capital requirements and ordered a retention of profits from the previous year. In our country, the strong capital positions of banks before the crisis and the stable base of financing lending activities through deposits, together with the regulatory relief in the classification of non-performing loans, should be aimed at active support of the private sector. On the other hand, the role of the FinTech sector, ie the financial companies that provide fast loans should be a buffer, ie to provide quick support to the population and micro and small enterprises. Therefore it is necessary to support this segment of non-banking institutions that are financed from their own funds and through other sources with higher financing costs. At the same time, they need to have the same regulatory treatment as traditional lenders, especially since they do not have regulatory incentives in the classification of non-performing loans and they are not recognized as an expense, which is not the case with banks and savings banks.
To summarize, the development of the FinTech industry in the domestic economy will be an inevitable trend in the future. It should bring greater availability and variety of financial products and services, whose prices with the growth of competition should be to the benefit of the population and enterprises. In this context, lending will certainly be one of the most important functions of the FinTech sector. The rapid growth of assets of financial companies in recent years has emphasized the need for finance of the population and businesses in Macedonia, and in these crisis conditions access to credit will be needed as never before. Therefore, it is necessary to build appropriate regulations for financial companies, which will not hinder their role in supporting the private sector, and at the same time it should signify supporting the financial stability in our country.