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Legal Briefing | Disruptive tech
Poland is at the forefront of technological advancement in Europe in the implementation of modern payment and banking solutions, such as contactless payments, bank-branded pay-by-link payments, or sector-wide solutions such as the BLIK mobile payment service. The popularity of mobile and e-banking (with almost seven and 14 million active users, respectively) and contactless payments (currently used in over half of all non-cash payments) is driven by technological diffusion and customers’ openness to innovation, as well as high dynamics of development of Polish transactional banking systems. Implementations that stand out, in both European and global contexts, include instant (express) transfer systems, ‘pure online’ remote channels of financial product sales, personal finance management (PFM), and remote customer service systems such as video advisory services.
Banks remain key innovators in Poland, implementing significant innovation both in a start-up model (‘fintech banks’), and within large, well-established multichannel banks which generate market-leading innovation on their own (‘fintech in banks’). In addition, a significant number of non-bank fintech companies are active in this market’s globally known segments (e-payments and financial platforms being the most numerous and mature group).
This results in high customer expectations in terms of service standards and accessibility in Poland. Combined with customers’ openness to innovation, access to a pool of highly skilled software developers, and – perhaps counterintuitively – demanding regulatory standards, this makes Poland a fertile ground for fintech innovation.
Poland has a comparably demanding regulatory framework in the financial services sector, with developed rules and regulatory standards regarding, in particular, outsourcing and cloud computing. The Polish financial services regulator (KNF – Komisja Nadzoru Finansowego or Financial Supervision Commission) is also generally perceived as conservative compared to its EU peers.
Paradoxically, instead of stymieing fintech innovation, this has pushed its development towards highly regulation-compliant products (which is also likely due to the natural regulatory sensibilities of banks as key fintech innovators in Poland). As a result, fintech solutions developed or tested in Poland are, more often than not, able to meet regulatory concerns elsewhere.
In respect of blockchain, KNF has adopted a pragmatic approach. It is cautioning the public in respect of trading in cryptocurrencies more generally (and ICOs, more specifically), but has kept an open mind in approaching distributed ledger/blockchain technology as such and its various other applications in financial markets.
This combination of factors has enabled the development of groundbreaking projects with regional or global potential.
For instance, several Polish banks are about to finalise the implementation of a blockchain solution for delivering information to customers on a durable medium. The solution, developed by Billon (one of our clients), is likely to be one of the first blockchain implementations in a regulated environment, and complies both with Polish bank regulatory constraints and GDPR. The solution is also extremely efficient with a capacity of 1,900 transactions per second (by comparison, Bitcoin and Ethereum can process only 20 transactions per second). It tackles an EU-wide regulatory problem (created after the European Court of Justice put in question the status of electronic banking systems as durable medium in the BAWAG case), but offers much more than publication of documents on a durable medium.
Another of our clients, cinckiarz.pl/conotoxia.com, has managed to grow its online currency exchange business into a global platform which is now available in 35 languages and counts among the top ten largest companies in Poland (and one of the most valuable brands in Poland).
We also see creative solutions being developed within banks in the wake of PSD2 implementation. Blockchain is also at the forefront of investment strategies of Polish banks, with the largest ones having either already effected or announced investments in that area, or running fintech accelerator programs (including in respect various blockchain applications).
A dedicated task force has been established jointly by financial market authorities and stakeholders to review the legal framework from the perspective of fintech development.
Finally, we see cloud computing solutions gain traction in the banking sector as key providers, in particular Microsoft, are constructing regulatory-compliant offerings tailored to KNF’s expectations.
In securities markets, the Warsaw Stock Exchange is also looking at technological innovation – and exporting its solutions to other markets – as a significant pillar of its new growth strategy.
Fintech development generally, and blockchain more specifically, can be expected to get a further boost from recent policy initiatives geared towards encouraging innovation.
#StartInPoland, an umbrella program launched in June 2016, foresees investment in start-ups by the Polish Development Fund and an expansion of accelerator programs under the aegis of the Polish Agency for Developing Entrepreneurship. The government estimates that in the next seven years Poland has the potential to become a place in which 1,500 companies will emerge and thrive, creating high-quality innovative technologies capable of competing in foreign markets.
The Minister of Development and Economy is also spearheading a large-scale digitalisation project dubbed ‘Paperless, cashless Poland’. One of its core elements is to enable citizens to use their banking ID and password to log in to the social insurance board or local government sites to deal with administrative matters.
Finally, a dedicated fintech task force has been established jointly by financial market authorities and stakeholders to review the legal framework and regulatory guidelines from the perspective of fintech development. In November 2017, the task force published an action plan for removing existing barriers to financial innovation. The plan, currently being implemented, foresees fostering financial innovation as a new, additional statutory goal of the regulator.
KNF has also opened an innovation hub programme for supporting the development of fintech, addressed both to new financial market entrants (including startups) that have an innovative product or service based on modern information technology, and to existing regulated entities planning to implement innovative IT-based products or services. Participants can expect regulatory support and dialogue. In particular, the regulator has indicated, in a marked departure from previous policy, that it is willing to entertain the idea of regulatory sandboxes or neutral zones.
On the tailwinds of a supportive policy climate, a significant existing financial innovation culture, and proven within-the-box creativity, we expect further interesting projects to come out of the Polish market. Many of these projects are likely to be client-facing solutions, but the most interesting ones will be going to the heart of processes and financial markets infrastructure.