Ukrainian fintech sector overview

Ukrainian fintech sector overview

Covid-19 has contributed to the growing demand for financial apps and mobile banking services in Europe. The independent financial advisory organisation deVere Group reports that the use of fintech services has increased by 72% in Europe as a result of the pandemic.

According to Vestbee report, as of Q2 2022, fintech is one of investors’ favoured sectors in Central Eastern Europe (CEE) region, accounting for 20% of the region’s 50 largest rounds of funding closed during the period. This indicates that investors are remaining bullish on the prospect of financial innovation in the region and are actively supporting young CEE fintech start-ups in growth opportunities and global ambitions.

Ukraine is well positioned among CEE countries attracting the majority of venture funding rounds together with Poland, Czech Republic and Estonia. According to the Ukrainian Association of Fintech and Innovative Companies (UAFIC), there are currently 203 companies in the Ukrainian fintech market. 49% operate in the international market. The largest number of Ukrainian fintechs is represented in Europe – 15% and in the United States – 7%. UAFIC became the first non-EU member to join the European Digital Finance Association (EDFA). Both organizations are collaborating to strengthen the fintech industry landscape in Ukraine. The technological infrastructure is a leading activity of Ukrainian fintech start-ups, i.e. the immediate product is the creation of IT solutions for financial companies and banks. According to UAFIC survey, the technology and infrastructure subsector makes 22% of fintech companies activities. The main reason for this tendency is a pandemic-resulted business shift to online services. This creates demand for product companies that can ensure the ease of doing business in the digital environment.

Other fintech subsectors most actively developed in Ukraine include Payments/Money transfer, Lending, Legaltech and Insurtech. This, in particular, corresponds with global tendencies of fintech sector development, where the growing number of investments flow to payments subsector.

In August 2022, the Law of Ukraine «On Payment Services» has finally come into effect. It was adopted in 2021 and is revolutionary for the Ukrainian fintech sector, specifically, for payments. One of the innovations is the harmonization of Ukrainian legislation with the European Union law, namely the Revised Payment Services Directive (PSD 2). As a result, Open Banking shall be introduced in Ukraine till August 1, 2025. To successfully implement open APIs, the National Bank of Ukraine (NBU) is developing new regulatory framework and standards for the Open Banking in consultation with market participants.

In March 2022, Ukraine’s President Volodymyr Zelenskyy signed the Law “On Virtual Assets”. The Law is designed to create proper conditions for establishing strong cryptocurrency market. After the Law enters into force, crypto exchanges and companies dealing with digital assets will be able to legally operate in Ukraine after obtaining the appropriate permission from the National Securities and Stock Market Commission, and banks will be allowed to open accounts for cryptocurrency companies.

Despite war challenges, the Ukrainian fintech community is working to create better infrastructure and regulation in order to attract investments. First, 90% of Ukrainian tech startups are still hiring as Techcrunch reports. Second, the Ukrainian IT sector is still growing. In the first eight months of 2022, Ukraine’s IT export has increased by 16%, as compared to 2021. IT services account for almost half of the country’s total volume of export services. The government support and the strong growth together make for a strong signal that it’s time to invest in Ukrainian IT sector. Third, start-ups remain an integral part of the Ukrainian economy. Ukrainian tech start-ups are dedicating their efforts to elevate the industry to new heights. They are set to become the foundational pillars for a new layer of technology companies that will add significant value to the economy. To this end, the Ukrainian Startup Fund (USF) has allocated $6.5 million for start-up funding during the last 3 years.

Overall, Ukrainian fintech companies have proven their resilience even in wartime conditions, and impressively continue to develop. Therefore, now it is time to invest in Ukrainian fintech sector.

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