The State of FinTech In Bulgaria

Situated in Southeastern Europe, Bulgaria shares its boundaries with Romania to the North, Serbia and Macedonia to the west, Greece and Turkey to the south and the Black Sea to the east. It comes under Balkan Peninsula, which derives its name from Balkan Mountains that stretches to eleven countries and nearly half of Turkey.

A satellite of Soviet Union after the Second World War, Bulgaria has seen many ups and downs since then. After the fall of communist rule in 1989, the country has constantly been going through a transition from the socialist economy to free market economy. According worldometers.info, based on latest United Nations estimate, Bulgaria’s population as on February 7, 2017, is 7,066,012, which is 0.09% of the total world population and 104th in terms of ranking by population. The population density is 65 people per square km.

74.1% people live in urban areas out of which about 17% live in Sofia, the capital of Bulgaria. The working age population is about 62% out of which 52.5% are men and rest 47.5% are women. 75.8% of the total working age population live in urban areas. The literacy rate is also quite high as about 98% youth, both male and female, are literate.

Reports suggest that education standards of youngsters were quite high earlier, however, in the past one decade, it has witnessed some decline. Youngsters’ scoring skill in math’s and science is not on par with the European benchmark and so is governments’ expenditure on education.

Despite challenges, Bulgaria has emerged one of the hot destinations for innovation in information and technology sector. According to various news reports, four years ago, IT sector’s contribution to the output of Bulgaria was less than 1% which today has crossed 3%. Tech talent, which earlier migrated to US, Germany and other Central European countries, get employed in either emerging Bulgarian IT sector or engaged in entrepreneurial activities.

Start-up scene in Bulgaria:

Bulgarian startup scene evolved for the first time in 2012 when European Investment Fund allocated €21 million in the form of JEREMIE-money.

Entrepreneurship has been consistently developing since then among challenging economic climate and legislative framework. Though the government doesn’t have enough money to spend on encouraging entrepreneurial initiatives, yet self-driven youngsters have kept their innovative spirit alive with new business plans and creative technology. Any disruptive or capital-intensive startup needs financial support which looks mostly insufficient in the country. The government’s move to render private property and trade nonexistent has caused a huge challenge for youngsters to mobilise private resources.

There is no special initiative on the part of the government to encourage financial technology. However, EU funds flow in for science, education, innovation and development of the knowledge economy.

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According to the Global Entrepreneurship and Development Institute, a policy development organisation based in Washington DC, Bulgaria holds 82nd ranking in the world global entrepreneurship. The institute further holds that the youngsters of Bulgaria have a better than the average attitude towards startups activities as compared to EU countries.

Despite challenges, some of the startups which have gained global attention. Among all startup activities, Telerik wrote a success story when Progress Software acquired it for $262.5M in 2014. Its co-founders, Vassil Terziev and Svetozar Georgiev, run Telerik Academy to teach digital marketing skills of Bulgarian companies.

Stremio, which provides an online entertainment platform for people to create, organise and watch a collection of movies and live television, has got a customer base of 2 million people just in one year. Valued currently at $5.5 million, reports suggest that the company has managed a $500,000 investment from Bitmain Tech, a Chinese company. In 2013, the country was ranked among three startup hotspots in European countries. Startup companies like Swipes, Dronamics and Halfbikes are the product of emerging startup ecosystem of Bulgaria.

Dronamics, a startup which develops low-price drones that can carry weight up to 350 kg and fly up to 2500 km, won the Pioneers Festival Challenges in Vienna out of 1600 startups from 90 countries. The company aims at bringing a revolution in the cargo logistics to benefit developing countries where connectivity and road infrastructure is a major challenge.

A winner of the Red Dot Design Award of 2015, Halfbike, is another pioneering project from Bulgarian startup firm which was born out of $1 million support from 2,416 people from the crowd-funding platform Kickstarter. According to the company, Halfbike is a vehicle of unique design which trains your balance and reflexes in an entirely new way.

Swipes, which is a productivity application, was adjudged “Best Start Up for 2014” at the Evernote Platform Awards. It was also nominated for a Webbie Award – “the Internet’s highest honour”.

Some other startups are pClout that provides personal or professional cloud storage, ClouDNS – a free managed DNS hosting provider, Affiliattly which is an affiliate tracking software, Microweber which is a free and easy drag & drop system for blogging or online shopping, Metrilo that analyzes data to help companies understand their eCommerce customers and Soccerfame.com which bring some most exciting facts, news and stats about more than 300 football competitions from all over the world.

How big is the fin-tech pie in Bulgaria:

According to Statista.com, the transactional value in the financial technology market in Bulgaria amounts to US$ 1,184 million in 2017, which is expected to show an annual growth rate of 17.4%. It is estimated to reach US$ 2245 million by 2021. Digital payment is determined to be the market largest segment in the FinTech pie.

The website further suggests that the financial services which look promising are digital and alternative finance instruments such as mobile payments, cross-border peer-to-peer payments, digital commerce transactions, marketplace lending (peer-to-peer platforms) for businesses & personal loans, Robo-advisors and automated wealth management services and online crowdfunding (equity-based)and venture financing.

Reports suggest that the country might be facing challenges on the financial front, but funding from EU and young tech talent in the country are creating a right FinTech ecosystem.

The country is working hard to catch up with the world’s FinTech hubs and trying to emerge as technology capital of the Balkans with the help of new generation of engineers and programmers who have a global outlook and approach toward innovation.

Sofia and Plovdiv have emerged as IT development hubs that outsource centres offering jobs for thousands of tech graduates. Experts say that Bulgarian IT sector gained ground under Soviet rule and when the country has moved from communist economy to free market economy, it is trying to make the best use of its expertise in IT sector.

As far as payment industry is concerned, according to a website paymentwall.com, 80% use a mobile phone for making payment while 16% use credit cards.

2% use e-wallet, 1% each use bank transfer and prepaid cards. 60% Bulgarians enjoy safe and reliable internet connectivity which is expected to improve in other suburban and rural areas. It will boost e-commerce sales.

One of the reasons for the development of digital technology is the fact that after South Korea, Bulgaria is the second country to experience fastest broadband service in the world.

Status of policy regulation in Bulgaria:

The business environment for financial technologies is positive however, starters face a lot of challenge in getting a firm registered. Attracting investment is quite challenging too. The bureaucratic set-up is too cumbersome which impact ease of doing business in the country. The legislative environment is unpredictable and judicial process is quite slow.

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The country is yet to recover from the economic crisis of 2008 which severely impact the measures that government should take to support FinTechs and quality of entrepreneurship activities. Among positive features are the presence of high-quality IT Talent, low government taxes, low living costs and high quality of life in Bulgaria.

The tax system is said to be the most business-friendly in the whole of Europe. The corporate tax is also lowest in among EU countries. According to reports, about 2000 companies from Greece shifted to Bulgaria in 2015 due to the economic recession.

Startup Incubation scene in Bulgaria:

More than one dozen Incubators, accelerators and venture capital fund in Bulgaria are providing support to tech startups. Prominent among them are Eleven, Launchub, Start It Smart, Equinox, BAS.Camp to name a few.

European Accelerator Report of 2014 holds ELEVEN as one of the top 10 investing accelerators and venture funds in Europe. In fact, ELEVEN and Launchub are the two most famous seed stage VC funds that aim to finance start-ups and innovative SMEs. NEVEQ, Teres Capital, VoiVoda Ventures hold the second rank in popularity. Empower Capital is among growth stage VC funds. Along with them, numbers of local and foreign angel investors are also growing.

Besides these funding firms, regular tech events such as Seedstars World, a global startup completion for seed-stage startups and Webit Festival, an annual tech conference, boost digital startups and provide a platform for startups their promoters to showcase their entrepreneurial talent.

Current status of financial institutions in Bulgaria:

The central bank that regulates formal and non-formal economic activities is the Bulgarian National Bank with its headquarters in Sofia. At present, the country has total 34 operating commercial banks, including 27 autonomous or subsidiary banks, and seven foreign banks’ branches. Bulgarian banks, Bulbank AD, UBB and DSK Bank, are the three biggest bank which holds 50% of country’s financial assets and-and 87% of total profit.

Bulgarian National Bank has strictly restricted all financial institution to extend any financial support to new and startup companies. A company has to show the accounting record of at least two to three years with the profit margin to get the loan from the banks. Innovation and tech companies feel financially constrained as banks refuse to sponsor their business plans with credit facilities.

Conclusion:

A robust and positive entrepreneurial attitude of youngsters is country’s asset. However, a developed financial market, more financial support and aggressive government involvement are the need of the hour in the today’s startup ecosystem of Bulgaria.

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