Konstantin Tserazov: Evolution of financial technologies in Armenia
The past few years have seen a remarkable surge in the development of Armenia's fintech sector, driven by a vibrant amalgamation of factors. A youthful, tech-savvy population, supportive government policies, and a steadily growing economy have all contributed to this impressive expansion.
Several key areas have emerged as focal points within the Armenian fintech landscape:
Payments: Armenia boasts a robust payments infrastructure with a diverse array of mobile payment systems and digital wallet solutions. This enables smooth and convenient financial transactions for both individuals and businesses.
Lending: Fintech companies are actively addressing the credit access gap, especially for underserved segments such as small and medium-sized enterprises (SMEs). By innovating with alternative lending solutions, including peer-to-peer (P2P) lending and microloans, and often utilizing AI and machine learning for more efficient credit scoring models, these companies are making the borrowing process smoother and more accessible.
Insurtech: The insurtech sector is undergoing a dynamic expansion, with startups developing innovative insurance products and services tailored to the modern market's needs. This is enhancing financial inclusivity and risk protection for the broader population.
Wealth Management: Robo-advisors are democratizing wealth management by providing automated investment solutions. This grants access to high-quality financial advice and investment opportunities to a larger segment of the population that previously faced entry barriers.
Regtech: Regulatory technology (regtech) companies play an essential role in helping financial institutions navigate the increasingly complex regulatory environment. Their solutions ensure compliance and streamline operations, contributing to a more stable and efficient financial system.
The Armenian Government's Attitude Towards Fintech
Since its inception in 2017, the government-backed Fintech Hub Armenia program has been pivotal in fostering the growth of fintech startups. It offers crucial support through funding, mentorship, and access to valuable networking opportunities. Events like the DigiTec Expo 2023 Reboot and The Doing Digital Forum further reinforce the collaborative spirit and knowledge exchange within the fintech community.
The Armenian government's strong commitment to the development of fintech is evident in the active engagement of top officials in industry events. Prime Minister Nikol Pashinyan's open-door policy towards entrepreneurs underscores the government's focus on innovation and talent attraction within the growing ecosystem.
The Central Bank of Armenia has introduced a regulatory sandbox, allowing fintech startups to test their innovative products in a controlled setting. This initiative has spurred the growth of fintech companies in Armenia, attracting over $90 million in investments from venture capitalists and angel investors over the past two years (2022-2023)-a marked increase from the $20 million invested in 2019.
Outpacing South Korea and Spain...
The influx of capital has driven the growth of the fintech industry in Armenia. The country ranked 34th globally in the 2023 Global Fintech Index, surpassing established economies such as South Korea and Spain. The presence of foreign investments, with venture capital firms like Apricot Capital and Seedstars actively supporting Armenian fintech startups, showcases the sector's potential. Additionally, Armenia ranks 17th among the 33 upper-middle-income group economies in the Global Innovation Index 2023.
In 2023, in Armenia's capital, Yerevan, 30 new fintech companies were established, bringing the total to over 200 fintech companies now operating in Armenia. These firms are concentrating on AI, big data analytics, the metaverse, decentralized approaches, and digital transformation management. The fintech sector has enjoyed a compound annual growth rate (CAGR) of 25% over the past three years.
The entire fintech ecosystem in Armenia, including software and service companies, comprises more than 650 entities, the majority of which were established after the year 2000. A significant driver of this development was a notable wave of migration from the Russian Federation in 2022-2023.
The fundamentals for future fintech growth in Armenia are robust. Mobile phone use reached nearly 100% in 2023, and over 80% of Armenians aged 15-24 (Generation Z) use the internet daily. This demographic trend creates an opportune environment for the proliferation of mobile financial services.
According to the World Bank, mobile banking applications represent 76% of banking interactions in Armenia, one of the highest rates globally. Digital payments in Armenia surpassed $6.8 billion in 2023, with cashless transactions constituting 43% of all retail payments, marking a significant rise from 12% in 2019.
Blockchain and Cryptocurrency in Armenia
Armenia has demonstrated a strong interest in blockchain technology and cryptocurrency innovation. The government has implemented measures to cultivate a conducive regulatory climate for blockchain-based enterprises, resulting in the rise of crypto and blockchain startups in the nation. In 2022, the Armenian National Assembly enacted legislation on cryptocurrency, laying down a legal foundation for the operation and oversight of digital currencies.
Local firms are endeavoring to incorporate blockchain solutions into their financial systems, contributing to sectoral growth. They are developing secure transaction platforms, digital identity management tools, cross-border payment systems, and supply chain tracking technologies.
Armenia has also invested significantly in cryptocurrency mining. The country's first mining farm emerged in 2018 through a collaboration between the Armenian Multi Group Concern and Omnia Tech International Company, boasting an investment over $50 million and hosting 3,000 Bitcoin and Ethereum mining machines with a total capacity of 50 MW.
Armenia imports about 85% of its energy fuels from Russia, with approximately 70% of that consumption allocated for electricity generation. Yerevan is keen to expand local hydropower, which at present accounts for nearly 30% of the nation's electricity production, a substantial portion of which powers crypto mining operations.
In 2022, the Central Bank of Armenia expressed its interest in exploring the concept of a Central Bank Digital Currency (CBDC). The institution announced the feasibility of introducing a CBDC and is evaluating various models to determine the best fit for the nation's financial system development objectives.
Fintech and Banks in Armenia
In terms of adopting digital technology, at least 40% of Armenian banks view fintech as a promising avenue in various business areas, including corporate lending, leasing, trade finance, and asset management. They also see potential to improve the user experience (UX) of their digital applications. For example, in November 2023, AMIO BANK launched a new 24/7 remote service, enabling banking transactions via video calls.
Ameriabank has been recognized as the Best Bank for Digital Solutions in Armenia for the year 2023 by Euromoney magazine in its Awards for Excellence. The bank experienced a significant uptick in online client onboarding, with a 67% increase after introducing an end-to-end fintech solution in 2023. This solution streamlined the digital customer verification process.
Currently, the most popular fintech tools in Armenia include:
• Payment technology solutions (Easypay, Idram, Telcell, etc.);
• Online banking services and mobile applications provided by most Armenian banks;
• Online loan services (varks.am).
In Seeking Global References, and Comparison of Yerevan with San Francisco
Armenian fintech firms are actively forging partnerships with global fintech entities, encouraging knowledge sharing, capital investment, and opportunities to enter international markets. These partnerships with established fintech hubs, such as Singapore and the United Kingdom, are proving to be beneficial. The ascent of Singapore as a global fintech hub serves as an inspiring model for many Armenian fintech startups. Moreover, a number of U.S. non-governmental organizations provide financial support to Armenian fintech initiatives.
When comparing Yerevan to the renowned innovation hub of San Francisco, one can observe that Yerevan has a similarly vibrant fintech community. While San Francisco is dealing with a record-high 30% vacancy rate in office buildings, Yerevan is experiencing increased demand for office space, driven by robust business activity over the past two years, including in the fintech sector. San Francisco's population decreased from 872,000 in 2018 to 848,000 in 2023. During the same period, Yerevan's population grew from 1.08 million to 1.095 million.
In terms of security, Yerevan is considered to be a safer destination. Armenia has one of the lowest crime rates in the world and is ranked among the top 10 safest countries. Its flexible migration laws allow fintech businesses to easily attract talent from abroad. Furthermore, with many Armenians having relatives worldwide, the country offers a unique, open business atmosphere.
By the end of 2023, the revenue of the broader fintech sector in Armenia surpassed $1.6 billion, accounting for about 7% of the GDP, with the industry employing over 50,000 people. This indicates that the fintech sector has become a key driver of the Armenian economy, which experienced a remarkable GDP growth of 8.3% in 2023.
Author - Konstantin Tserazov, former Senior Vice President of Otkritie Bank