Polish Fintech Market Overview

Despite the ever-changing regulatory environment, in 2023 the Polish fintech industry continued to be one of the most innovative markets in the EU. The overall condition of the Polish economy is positive and stable. GDP continues to grow, albeit slightly slower than anticipated. In February 2023, inflation reached its peak level since the mid-90s (18.4%), sharply declining by over 12 percentage points to reach 6.2% at the end of year. Mass layoffs in the technology industry worldwide did not impact on the Polish sector as much as in some other countries, and a stable growth of the market has continued throughout the entire year.

The strong position of the Polish technology and fintech industry has been demonstrated by recognition of numerous Polish companies in the Deloitte Technology Fast 50 Central Europe 2023. In the area of fintech, it is particularly worth highlighting the successes of:

• PayPo (a BNPL service provider, ranked third in the general classification);
• Digital Gateways (a digital identity hub, recognised as one of the “Companies to Watch”); and
• Kontomatik (provider of open banking solutions, awarded special recognition in the CE Tech Rocketship category).

Embedded finance, understood as integration of financial services or financial products into non-financial services or goods (see here), is a trend that has already been widely embraced by the Polish fintech industry. Online marketplaces increasingly demonstrate their interest in embedding financial services, either in co-operation with external partners or by developing their own offerings (eg, BNPL or payment services). Banks also benefit from this trend, effectively embedding BLIK services into their mobile applications.

Another significant and noteworthy trend is the role of platformisation influencing the distribution channels of financial products (see here). The financial industry in Poland is very interested in exploring new channels of distribution, as customers eagerly utilise (for instance) online comparison tools, facilitating consumer lending or the purchase of travel insurance policies. One interesting result here is the declining number of bank branches, hitting a 25-year low in 2023 (below 10,000 per ca 38 million inhabitants).

Each year, there is a growing number of areas in which banks and fintechs can effectively collaborate. A key matter in which banks seek to outsource processes to external technology providers is the area of client onboarding and remote identification. Significant regulatory changes, the growing share of online communication channels and the pursuit of better conversion rates drive banks and other financial institutions towards engaging online e-identity hubs. Banks are also actively seeking external solutions for enhancing security (such as launching behavioural biometrics), which are usually developed by external vendors. Additionally, banks are exploring opportunities for more efficient data exchange for cybersecurity and AML purposes.

Despite Polish fintechs and banks striving to find areas of co-operation, there are still outstanding issues in their mutual relations. In particular, de-risking practices (ie, avoiding risks related to co-operation with certain customer categories) at some Polish banks amount to a major problem for many fintechs, which still face challenges in opening and keeping their bank accounts. Payment institutions usually agree to report detailed business data to banks (typically through AML questionnaires based on the Wolfsberg Group Questionnaire).

Consumer Finance and BNPL

Lending is one segment of the fintech industry that has likely felt the strongest impact of recent regulatory changes. A significant overhaul of consumer finance regulations in Poland was completed in 2023, resulting in several capital, organisational and business requirements for all fintechs intending to provide consumer finance services in Poland. The scope of the overhaul affected the whole B2C market, including short-term online loans, buy-now-pay-later (BNPL) products, credit cards and pawnshop loans.

Consequently, all lending institutions have become subject to the supervision of the Polish Financial Supervision Authority (KNF), from January 2024. The number of such institutions, however, significantly decreased in Q4 2023. In November, the register of lending institutions included nearly 500 entities (though some were inactive); by 2024, this figure dropped to 107. While the market asserts that all institutions are financially stable and ready to operate in a heavily regulated environment, experts anticipate possible market consolidation in the coming years.

Compared to other jurisdictions, Polish BNPL products have developed in a quite restrictive legal environment. BNPL providers in Poland usually cannot rely on exemptions from the consumer credit regulations (such as for low-value credits), which require users to comply with the provisions of the Consumer Credit Act, including limits on interest and non-interest costs.

The recent overhaul of Polish consumer credit regulations has significantly tightened lending rules, which also affected BNPL. The supervision of the KNF over most BNPL providers, very strict limits on borrower fees and detailed rules on creditworthiness assessment pose considerable challenges for offering BNPL products in the Polish market. However, they have not prevented the growth of the BNPL market in Poland. The predominant factor driving such growth continues to be consumers’ interest in deferring payment, and the low cost of such short-term financing for purchases. The scale of abuses related to such products remains minimal compared to other countries, with BNPL being considered a relatively secure form of financing consumer needs.

It must also be noted that, in relation to the new consumer credit regulations, considerable financial requirements and additional costs to be borne have led to some market participants searching for new streams of revenue, including new products. Several lending institutions have already made attempts to enter the payment services market or to offer value-added services to their customers.

However, despite the strict lending regulations, the share of BNPL products in the Polish market is on the rise. Furthermore, BNPL products offering remains exceptionally innovative and, unlike in global markets, the quality of the credit portfolio is notably high, often surpassing that of banking products.

Payment Services

Deloitte has researched current trends in payment services globally and has identified four main megatrends that will impact on the European payment landscape in the coming years (see here):

• enhanced customer experience;
• emerging technology;
• evolving regulations; and
• managing risks.

These trends also significantly affect the Polish payment services market. The Polish fintech industry is subject to the EU’s stringent regulatory framework, but benefits from the strong technological foundation of the Polish IT industry. This background noticeably impacts on opposing trends: a commitment to constantly improving customer experience on the one hand, and prudent management of operational risks on the other.

Although cash remains the most popular payment method in Poland, a local phenomenon in the Polish market is the growing popularity of BLIK, a native mobile payment system that was created as a result of co-operation between six major Polish banks. BLIK has become a highly popular payment method in Polish e-commerce, and the total number of transactions carried out at POS terminals using BLIK also continues to increase. In just the first three quarters of 2023, BLIK settled 1.3 billion transactions, totalling PLN171 billion (approximately EUR40 billion). BLIK also settles instant peer-to-peer payments, facilitating small consumer-to-consumer settlements, which significantly contributes to its popularity. BLIK is a service entirely embedded into banks’ mobile applications, and its use does not require customers to install any dedicated software or to register any additional accounts.

In the Polish market, the number of payment cards and transactions made with payment cards is also on the rise. Debit cards have a clear dominance in the market, while the overall popularity of credit cards is gradually declining. According to statistics published by the National Bank of Poland (NBP), 97% of payment card transactions are contactless. Factors affecting this figure include the growing popularity of mobile banking in general and the particularly high adoption rate of wallet solutions (Apple Pay, Google Pay). Several non-bank providers have attempted to issue credit cards; however, Polish reform of consumer credit rules and the unfavourable position of the KNF has resulted in significant costs that apply solely to non-bank credit card issuers.

The efforts of the Cashless Poland Foundation (Fundacja Polska Bezgotówkowa) have also significantly contributed to the popularity of payment cards and other cashless payments in Poland. The Foundation is committed to expanding the payment acceptance network in Poland by reimbursing the costs incurred by entrepreneurs, who consider offering their customers (for the first time) the option of paying with card or other payment instruments. Such reimbursement includes the purchase of a POS terminal and most transactional fees for the initial 12 months.

Over the past year, a slight slowdown was observed in the area of payment service providers licensing in Poland. The KNF has issued only three licences for new payment institutions; while two such licences were withdrawn on request of the payment institutions. Moreover, 24 small payment institutions were removed from the KNF’s register (out of the total number of 48 such entities removed from the register since the regulation of small payment institutions entered into force). The Polish payment market is gradually undergoing consolidation, though this is more a consequence of acquisitions from previous years than of new M&A transactions.

Furthermore, the Polish Bank Association has issued a uniform standard for coding information accompanying transfers conducted by non-bank payment institutions using bank infrastructure. This standard serves as a temporary implementation of EU regulations on the information accompanying transfers of funds, until the ISO 20022 standard is integrated into the domestic infrastructure of the Polish payment services market.

Digital Identity, Open Banking and Open Finance

The Polish financial market is concerned about digital identity projects and solutions. To some extent, this trend is driven by business needs, in particular financial institutions’ plans to explore new communication channels with their customers. However, another important factor for projects in the area of e-identity and remote onboarding is the rapidly changing regulatory environment. This includes domestic regulations as well as approaching reforms at the EU legislation level.

In 2023, a major challenge for financial institutions in Poland was the new legislation on the mObywatel mobile application (obywatel means “citizen” in Polish). mObywatel was developed by the Polish government, and every citizen can access various public services through it. One of the most innovative features of mObywatel is the ability to confirm one’s identity in face-to-face relations (eg, on the premises of public authorities) as well as remotely.

The new law required obliged entities (as defined by Polish AML regulations) to accept the mObywatel app as part of the customer identification and identity verification processes. Given the very short timeframe for the implementation of these regulations, mObywatel was implemented at an express pace, often in co-operation between banks and fintechs delivering comprehensive e-identity solutions. Despite some minor imperfections, the introduced changes are regarded as revolutionary in terms of advancing the digitalisation of both public and financial services in Poland. Confirming an individual’s identity through the mObywatel app is legally equivalent to identification using a traditional ID document.

A new area of market interest is the remote onboarding of entrepreneurs and legal entities. The challenge lies in conducting much more complex background screening compared to similar processes required for individual customers (including valid representation of legal entity, AML/KYC, identification of ultimate beneficial owner, creditworthiness assessment, sanction screening, etc). Some providers are developing solutions to streamline such online processes for financial institutions willing to develop their offering for the SME sector. This area offers a broad spectrum of opportunities for fintechs in the coming years.

It must also be noted that the EU’s proposal of an open finance regulatory framework (ie, FIDA) has attracted a great deal of interest in Poland, particularly within the banking and insurance industries. Even though open banking services are primarily used for creditworthiness assessments by lending institutions and certain banks, as well as by the providers of personal finance management (PFM) tools, many entities in the market have expressed interest in expanding the scope of the EU financial data space to include all financial institutions operating in the common European market.

The Polish market already demonstrates lively interest in the review of open banking regulations. Of interest to note is that Polish users are quite willing to embrace solutions based on open banking. The widespread use of the redirection model in banks’ APIs (which is familiar to consumers of the pay-by-link payments model and is incorporated into the PolishAPI standard) builds greater trust among users who are generally aware of the risks associated with sharing their personal security credentials with third parties. As such, from the perspective of the Polish market, the European Commission’s plans to recognise the redirection method as an obstacle to third-party providers’ access to payment accounts may have the opposite effect to that intended and may undermine trust.

Foreign Expansion of Polish Fintechs

As global connectivity and the value of the global e-commerce market increases yearly, Polish fintech companies once firmly established in the domestic market are increasingly setting their sights on international expansion.

For innovative financial service companies, which already possess a stable revenue base on the Polish market, expanding into foreign (and especially EU) markets offers access to larger customer bases in other fast-growing economies, thereby diversifying revenue streams and reducing dependence on the domestic market. Polish fintechs can capitalise on the increasing demand for innovative financial services and products in foreign markets to drive growth and profitability.

The challenge, however, is to find a market with similar customer habits and preferences when it comes to financial services. In Poland, certain characteristics define consumer behaviour in the financial sector. For example, there is a growing preference for digital banking and fintech solutions, driven by a tech-savvy population and increasing smartphone penetration. Polish consumers are accustomed to convenient and efficient online banking services, including mobile payments, peer-to-peer transfers and digital account management. Replicating these preferences and habits in foreign markets may not be straightforward; as such, most success stories concerning Polish fintech expansion come from markets with characteristics and growth potential similar to Poland – mainly from the CEE region (such as Romania), where consumers tend to exhibit more openness to financial innovations.

If Polish fintechs are known for one thing, it is for their innovative approach to offering and delivery of financial services. With a track record of pioneering solutions that leverage cutting-edge technology and user-centric design, Polish fintech companies are also well-positioned to disrupt and reshape financial service landscapes in other markets.

However, amidst these opportunities, Polish fintechs face significant challenges as they embark on their journey of international expansion. A significant obstacle lies in navigating the regulatory landscape of the foreign market and aligning it with Polish legal requirements.

Even though the regulatory framework for financial services is based on harmonised EU rules, each EU country maintains a certain degree of flexibility when implementing EU Directives, which leads to somewhat divergent applications and interpretations of local authorities. One example is the Polish supervisory authority’s approach to e-money, which differs from how this is understood in other EU jurisdictions. Furthermore, some areas, such as consumer credit, tend to be comparatively overregulated in Poland. This necessitates meticulous research, legal expertise and (often) the establishment of local partnerships to ensure regulatory compliance.

The fact that Poland still retains its national currency rather than adopting the euro cannot be overlooked, as this complicates financial operations. Consequently, any foreign expansion plans require consideration of the complexities and uncertainties related to exchange-rate risk.

Despite these challenges, Polish fintechs’ potential for growth and success in international markets remains substantial, showcasing their resilience and adaptability in the European arena.

Crypto-Assets Regulation

The draft Polish act on crypto-assets was published at the start of 2024, and brought significant market controversies. Although the proposed law is limited to what is necessary to ensure the legal framework for the functioning of the crypto-assets market in accordance with the Markets in Crypto-Assets Regulation (MiCA), including designation of the KNF as the competent authority with supervisory powers, professional secrecy for crypto-assets service providers and detailed rules of liability, sector representatives have already voiced concerns about insufficient lawmakers’ support for the market.

Despite the adoption of MiCA at the EU level, Polish regulators still perceive crypto-assets and virtual currencies as a source of significant risk for consumers. In recent months, the KNF has repeatedly emphasised that warnings and messages regarding the risks associated with the crypto-assets market remain valid.

Polish Fintech Cybersecurity

Traditionally, the KNF has been vigilant regarding the security of emerging fintech solutions and services. Since 2019, a separate cybersecurity department has operated within the supervisory authority. In terms of cybersecurity, a primary concern of the KNF is the transposition of Digital Operational Resilience Act (DORA) regulation into Polish law; although so far the authority has only presented general communications addressed to supervised institutions.

DORA regulation is also a major concern for fintechs and financial institutions. The KNF has required supervised entities to carry out DORA compliance self-assessment, based on the draft questionnaire made available by the KNF. A significant number of banks and other major institutions have either already launched projects to implement new digital operational resilience requirements in their operations or are expected to do so before the end of Q2 2024. There are also several active working groups dedicated to DORA regulation in Poland.

Notwithstanding DORA regulation, many banks are considering the implementation of solutions relying on behavioural biometrics and aimed at enhancing security of online banking services. However, regulatory issues, especially concerning privacy and the protection of banking secrecy, pose significant challenges for such projects. Additionally, the challenge is compounded by lack of consumer awareness, as consumers are often hesitant to provide consent for the use of behavioural biometrics. Hence, the market eagerly awaits the PSR regulation expected to govern and facilitate the use of such solutions.

According to statistics published by the NBP, the number of fraudulent card transactions in Q3 2023 increased slightly compared to the previous quarter. However, these figures did not exceed the level of 0.0025% throughout the entirety of 2023, and are considered low by the NBP. The NBP also emphasises that, in line with similar statistics published by the ECB, the overall number of fraud cases in the Polish market is declining. Nevertheless, cases of social engineering such as phishing and spoofing (also on social media platforms or marketplaces) with the aim of committing financial fraud are regularly observed.

The practical application of consumer laws governing banks’ liabilities for payment transactions has been thoroughly examined by the Office of Competition and Consumer Protection (UOKIK). Since 2022, this authority has initiated proceedings against 15 banks in relation to alleged infringements of PSD2 rules governing liability for unauthorised payment transactions. Proceedings are conducted based on regulations regarding infringement of collective consumer interest, and in which the UOKIK may impose penalties on each bank of up to 10% of the bank’s annual turnover.

Artificial Intelligence and Hyper-Personalisation

AI and hyper-personalisation are becoming increasingly prevalent in the financial sector, revolutionising how financial services are offered and delivered to customers. Leveraging tools such as CRM systems and CDP platforms, financial institutions can tailor their offerings to individual customer needs, enhancing customer experiences and driving business growth. However, the possibility of implementation of personalised services and the scope of processes that can be automated depend on the level of regulatory impact. Any project must be carefully aligned with regulatory requirements, such as the GDPR, to ensure compliance and protect customer data privacy. Also, the impact of upcoming regulations such as the AI Act must be monitored and taken into consideration.

Data processing lies at the heart of personalised financial services, requiring strict adherence to privacy regulations. However, compliance with the GDPR is not enough. Any hyper-personalisation project must ensure the confidentiality and security of financial information under applicable sectoral legislation, such as the Banking Law or the Act on Insurance and Reinsurance Activity.

Furthermore, the integration of AI and automation introduces new dimensions to personalised financial services, enabling features such as automated financial advice and AI-driven marketing communication. However, ensuring the transparency and explainability of AI algorithms is crucial, particularly in decision-making processes such as credit assessment. The need for ensuring compliance of AI solutions will be even more evident once the upcoming EU regulations on AI become binding.

Financial institutions are keener than ever to offer hyper-personalised financial services to their customer base, and Polish customers are embracing the innovative, personal and AI-based approaches to services they use. Nevertheless, as financial institutions navigate the regulatory and technological landscape of hyper-personalisation, a strategic approach is essential in order to balance innovation with regulatory compliance and customer trust.