Several reports have suggested it so far: Bulgaria is an evolving fintech hub. Furthermore, it’s the most vibrant fintech destination in the SEE region, concentrating the highest number of companies in this sector. The first in-depth report about the local fintech landscape that has just been released by the Bulgarian Fintech Association and media company SEE News, shows that most of the fintech ventures are startups, they specialize in payment products, and the sector has been profitable for the past five years.
According to the researchers’ estimations, the operating revenue of the fintech sector in Bulgaria exceeded €200m. The growth of the sector attracts also the venture capitalists as over €80m have been invested into 14 ventures.
The new fintech wave
The fintech ecosystem in Bulgaria consists of 65 companies established or with operations in the country as of April 2019, reads the report. More than 60% of them are startups – companies established during and after 2014, and/or companies that received venture capital funding. The remaining 40% are companies that have a longer history and/ or were established by other corporates without the help of VC funds.
Even though Bulgaria is rather known for its focus on software services, this is not the case in the fintech sphere, as 90% of the players develop products. The main area of specialization is payments and billing (30%), followed by solutions for capital markets (15%), and personal finances (12%).
Bulgaria, the CEE and other European countries are the main markets for domestic fintech companies. Their typical customers are B2B service providers, young professionals, product managers, and technologically savvy people.
Big players, big money
Overall, the sector has been steadily growing ever since 2014 reaching an operating revenue of €212.5m last year, and a net profit of €59m. Even though startups are also gaining momentum and developing well, more established players are the main revenue generators.
Five companies have generated 80% of the turnover in the fintech sector last year: Paysafe, Trader.bg, Emerchantpay, ActivTrades, and Credissimo. In sum, startups have contributed €765k of revenues to the overall performance.
VCs like crypto?
As of April 2019, the fintech companies in Bulgaria have raised €80m of venture capital, suggest the authors. The latest venture debt financing round of €18m from the European Investment Bank that Software Group received this spring is not included. In total, 14 companies have received external investments, with most of the rounds being in the seed range.
Even though the report identifies only three projects in the crypto and blockchain sphere, the most venture capital has flown exactly in this domain. The best-funded company is Nexo, having raised a total of €46m from the US asset management firm Arrington XRP Capital. Investors have put another €18.1m into lending, most of it being put into CashCredit. The single Series A investment went to Charlie Finance, a personal finance company, started by a Bulgarian entrepreneur in the US, has also raised a significant round of close to €8m, this is however not too relevant for the local ecosystem, as the main connection of the company to Bulgaria is one of its investors – Launchub.
Payment and billing companies, despite being the majority of the fintechs, have attracted “as little” as €1.8m.
What’s next: DApps, AI & Corporate Innovation
Further growth reaching €300m of operating revenue in 2019 is expected. Growth in online payments, including mobile payments and payments through decentralized apps, is another trend for this year. Artificial Intelligence (AI) and Robotic Process Automation (RPA) will be the two technologies that will play a significant role in the further development of the sector.
Тo stay ahead of the competition, an increasing number of banks will support or cooperate with fintech corporates or startups. This will enhance their existing product offering and leverage the fintech products using their data, especially in respect to the PSD2 directive. In general, fintechs are expected to be seen more often as partners to the traditional financial companies rather than their aggressive competitors.
The first signs are already visible – payment provider Visa, together with local investment fund Eleven Ventures have already started a fintech corporate accelerator where most of the banks on the local market also participate. Raiffeisenbank Bulgaria also conducts an annual acceleration competition. We’ve recently seen even leasing companies cooperating with startups to launch disruptive services on the market.
According to the authors, Investments in regtech are expected to speed up, fuelled by expansion in the regulatory oversight regarding fintech sector.