Hungarian Fintech – Going the extra distance

“We always say that we were a Fintech company since before the term was invented, because we’ve always been a technology provider for financial services.” Head of Marketing at Dorsum, Greg Csorba, makes a reasonable point about a company that’s been in business for more than 25 years. In other words, hot on the heels of the collapse of Communism across the Central and Eastern European region, the Hungarian investment software and solutions vendor was getting traction.

Greg outlines how Dorsum began with back office systems and securities accounting, and core banking management systems, which have since been sold to almost every player in Hungary, and then into the region. This widespread success provided a strong foundation enabling the company to invest in new and diverse areas, to innovate more, and get into new fields. And in the last 5 years, thanks to capital accumulated from the previous focus, Dorsum has entered the new area of wealth management.

Greg Csorba

Thinking like a startup

So does this long corporate history mean that Dorsum can really be described as a Fintech? “When a new term comes along, it doesn’t change what we do, but perhaps it re-categorizes things.” Says Greg. “So these buzzwords can actually be beneficial to an older company like us, because we get a boost from being in the same playing field as startups.” However, he says that although Dorsum is seen in the same category, there is vastly more knowledge and experience available to customers. So Dorsum is both fresh and new, and deeply experienced and mature – that’s a pretty good trick to pull off.

But this mention of ‘wealth management’ has me slightly confused. I’m imagining oligarchs and their retinues turning up at Dorsum’s Budapest HQ with bags of money. But of course that’s naive, and just plain wrong: the company never deals directly with end users, as Greg explains: “When we develop our products, especially our newer, more client-facing products, we know that they will eventually be in the hands of the customer. But we don’t sell directly to them, we only sell to financial businesses. So when your bank launches a new trading platform, obviously it will be branded under that bank’s name, but the development was actually done by a software vendor like Dorsum.”

Dorsum

Greg also points out that when a software vendor develops any type of software for banking, it does so according to specifications from the bank, however sometimes software developers do not understand the needs of the bank’s clients and employees. The logical solution – which Dorsum has pioneered over the years – is to have experts who do know what customers want, because they’ve been on the banking side of the fence. “So we have people internally who advise and guide our software developers to create a product that’s already more or less final and ready to be sold. And the bank doesn’t have to start from zero when ordering a new product.”

 

Looking to the Cloud

OK, so it’s the banks that are the target market for Dorsum, especially the bigger banks like OTP for example? Greg agrees to some extent, that big on-premise solutions are so large, that they are classic traditional products focussed on big core banking accounting systems: Pricey, but robust.

However a shift is taking place as everything moves into the cloud, with the result that more licence-based solutions are coming onstream. “Banks have traditionally been averse to letting any security information go outside their internal systems,” says Greg. “But now security is at such a level that buying Software As A Service is not impossible, and it’s also getting less unusual for the more traditional players to have an IT department that is OK with using those services. As soon as you start using Amazon or Google servers, then you’re in the cloud, and you can start to trust.” Or perhaps you have to trust.

With such possibilities in mind, Dorsum started to review its solutions to see if they could be repackaged in different ways to find new clients in new target groups – an example being a client-facing application already sold to bigger banks for investors. The company has now developed a simplified version of this app, offered as a service. It can be set up in a couple of weeks, allowing smaller companies such as brokerage houses, or smaller asset management firms to use it. Greg summarizes, “So we have growth potential by finding new clients for the big products that we have, or by developing products specifically for new segments, that can be rapidly licensed and installed.” The third pillar of Dorsum’s continued growth is to extend to new geographic territories and markets, but we’ll get to that presently.

 

The Hungarian for ‘Hungarian’

First let’s check in with Balázs Faluvégi, Fintech entrepreneur, prolific writer and author, and now Chair of the relatively new Hungarian Fintech Association, MAFISZ. The Hungarian word for ‘Hungarian’ is ‘Magyar’, so MAFISZ is a contraction of Magyar Fintech Szövetség – the last word being ‘Association’. Got that?

“There has been a Hungarian Fintech scene for the last four or five years,” Balázs says. “But there was no association, because it’s a very mixed picture here. There are incubators from big banks, universities, and even the telcos, but the scene only just became mature enough to bring in the rest: the smaller or medium sized tech companies who are independent from the big banks. So we do have bigger banks and incubators in Mafisz, but most members are smaller Hungarian Fintechs. We started in 2020 with 9 founding members, and now have 27 companies.” One of the founding members was Ergomania, the UX-UI Design Agency, and the largest member company, in terms of employees, is Dorsum.

Balázs Faluvégi

 

Three primary goals

Balázs outlines the three main goals of Mafisz, indicating the association’s ambitious scope. The first goal is to lobby and represent the Fintech community’s interests in terms of regulation and relevant laws. Here he sees steady progress, especially through MNB, the Hungarian National Bank, with its Innovation Hub and regulatory sandbox. Balázs is complimentary about the proactive stance of MNB in helping to support Fintechs. “We’re really grateful for what they do,” he says. “But there are other parts of lawmaking or policymaking which are less flexible, with some big areas where we are really lagging behind in Hungary.” He gives as examples Crowdfunding, KYC, and AML laws which are ‘pretty harsh’. And he says that while perhaps it’s the same everywhere, PSD2 is a big issue. Legally there is an obligation for banks to be open, but in practice it’s barely working. “So we have to push other organizations, banks, and policymakers to create more flexible laws and practices. That’s our main priority.”

 

Education, and more

A second important goal for Mafisz is education, and building cooperation with educational organizations. This includes universities and independent education companies, where there is a very good talent pool, especially in IT. The downside is that there is a notable lack of enough qualified people. Maybe it’s the same problem across Europe, Balázs admits, but Mafisz is trying to help by looking for people who have the rare mixed talents of both an IT and a business education.

“That’s a barrier in education, of not having enough young people with the right skills to launch new companies. I think there’s a way bigger potential in this country, and that’s what we’re trying to help,” Balázs continues. “The Hungarian Fintech Scene is very B2B oriented with 89% of our member’s aggregated revenue coming from B2B activities. While that’s not necessarily a problem, ultimately we need more end users.” There is a growing affluent sector in Hungary, but at only 8%-10% of the market, it’s currently not big enough to reach critical mass. Mafisz education initiatives are aimed at helping increase that percentage.

MAFISZ

 

Beyond national borders

And the third goal? Here Mafisz is focussed on international cooperation – especially in Europe – with Fintech organizations such as Holland Fintech and Fintech Belgium – as well as other ecosystem members, including policymakers and NGOs. And while Europe may be the main focus, Mafisz is also developing connections in the U.S. and Singapore.

Pakistan features on the Fintech Hungary map too, with a new exploration of possibilities with Fintech members there. While the Mafisz three goals approach seems very well directed, at the same time the association is open to whatever comes along. If cooperation with Pakistani Fintechs materializes, then why not pursue it?

The point of such connections is to help Mafisz members expand into international markets. With a population of less than 10 million (and that limiting factor of 8%-10% of affluent people) Hungarian Fintechs have to look beyond national boundaries. Currently just 6 Mafisz members are active in foreign markets, which Balázs defines as having an office, sales representatives, and significant market share coming from outside Hungary. That’s about 20% of the association’s members, but a lot more companies have the potential and ambition to operate abroad. He comments, “But it’s not easy – it’s a trust issue.”

 

The Trust thing

Hang on! So Hungarian Fintechs can’t be trusted? The Chair of Mafisz is quick to correct that impression: It’s all about the perception, not the actuality. If a British company goes to the Netherlands for example, it’s rarely a problem. Whereas if a Hungarian company tries to get a foothold in the Netherlands, they might be respected, but it will be hard to sell their idea. Minor trust issues extend to the whole CEE region, which is also why Mafisz is keen on inviting external Fintechs into Hungary, to assist the two-way education process.

But surely opening the Hungarian market up by encouraging foreign Fintechs means a weakening of the local players? Balázs is adamant, “I don’t know one example of a foreign company that came here causing any damage to the ecosystem. I think we need more inspiration, more education, more good examples, more experience, so we have a lot of stuff to learn from each other.”

He gives Wise as an example, with one of its largest offices situated in Hungary, which as of 2018, was the fastest growing location in the Wise portfolio. “Wise don’t take away business from companies here because it’s a developer’s office. They have a lot of software engineers and a lot of developers, some human resources, some administration. And they are like an architect of the Fintech scene. They go to meetups, they educate people, they inspire people. And the 100 software engineers who work there learn a lot, and then their education, ideas, culture, and experience enrich the ecosystem and make it stronger, right?” Right.

 

Expansion

Greg Csorba has referred me on to Bálint Fischer, Chief Business Development Officer at Dorsum, who has further observations about international markets, and the need to expand into these. “We are not yet a company with a global presence or a classic global mindset. So it’s a big challenge to transform a Hungarian-based but now regional market leading company into a real European, and later on, global company.” Currently Dorsum is in 10 countries in the CEE region, with around 80 clients. All are financial institutions, comprising banks, asset management companies, brokerage houses, insurance companies, and pension funds. Main revenue comes from the big banks such as KBC, OTP, Raiffeisen, Erste, and BNP.

Bálint Fischer

Bálint describes the enthusiasm in Dorsum for the acquisition of a new client, the company’s first in the UK. He sees it as an example of the proof of Dorsum’s expansion plans, and also how it has been possible to overcome the trust issues that his colleague Greg Csorba described.

Like many good business stories, the UK client connection (the formal announcement is still under wraps) came about through that old combination of right place / right time. Having made contact with an individual at a London financial conference back in 2016, Dorsum’s sales representatives chatted about cooperation, but little came of it. Until that is, the contact moved to a new company which was in the market for an end-to-end digital solution on the wealth management side, for both advisors and clients. All the companies invited to tender were UK based, but the old acquaintance recalled Dorsum, and insisted that it be added to the list of potential suppliers.

The tendering process commenced around February 2020, during the first big wave of Covid, so there was no opportunity for the Dorsum team to meet the client team in person. With everything being conducted virtually, Bálint now sees that as something of a ‘levelling of the playing field.’ Whereas all of Dorsum’s rival UK companies could normally have had face-to-face meetings, popping into the client offices at any time, the fact that Dorsum was based remotely in Budapest had little impact on negotiations, because now everyone was based remotely. By September 2020 the business was won and Dorsum’s first UK client was trialling a product… with the teams still yet to meet in person!

 

The winning combo

But why did Dorsum win, and how was the perceived lack of trust in CEE businesses overcome? Number one, says Bálint, is that for all the other UK vendors in the race, it was ‘just another’ new client in the UK. For Dorsum, it was clear to everyone that this was a flagship project from the start. There are more than 300 people employed by Dorsum, and the company has a revenue of around €15 million, so it’s not a startup. On the other hand, to win the business the company had to behave with the energy and belief of a startup – to ‘go the extra distance’ with a more comprehensive approach.

Second in the winning combo was the product itself, which required modification because of the special needs of the unique UK market. “They are the first client for us in this very discretionary, less-regulated model. The other part is that they’re not just working with high net worth individuals, but also with charity funds, and university foundations. With this kind of client there are also different user roles. For example, a University Foundation has an accountant, an asset manager, a CEO, and they all have different needs. This was an absolutely new aspect that we had never covered before.”

Bálint describes the learning curve as being difficult at the beginning, but after a year, thinks that the experience and knowledge can be brought back to the CEE region. For example, he says that in Environmental and Social Governance (ESG) there was much to learn from the UK client about how they manage these matters. In the CEE region this sort of awareness is only just starting to get traction, but in the UK it’s much more advanced. Now, Bálint says, Dorsum has gained vital, and transferable field experience.

 

Flexibility and price

The third winning hand from the UK client’s view of Dorsum was the company’s flexibility. That’s a hard thing to measure, but Bálint again refers to the competitor companies also in the bidding. They came to the table with fixed processes which to a large extent the client would have to adapt to, whereas for Dorsum there were no UK precedents, therefore allowing real client needs to be met with greater flexibility.

Then there was the price. Many companies in Central and Eastern Europe can offer price reduced nearshoring, and Bálint agrees that this was a factor in the UK win, but stresses that it was only the fourth point – the cherry on the cake as it were. A UK-based developer can cost as much as three times the daily rate of someone doing exactly the same work, but located in Hungary or other CEE countries. So of course price was important, but the other three factors in the win counted for more.

Is this first UK client a sign of further UK expansion for Dorsum? Bálint Fischer doesn’t dismiss any opportunities, but says that Dorsum’s primary target remains the CEE region. There are still a lot of players not working with the company, so it makes sense to develop more regional markets, Poland being a prime example. “It’s about size – Poland is number one.” The country has a population of nearly 38 million, dwarfing Hungary. It’s not just about GDP, but also the maturity of the markets. Part of the Dorsum strategy for the region is to increasingly open more local offices with native Country Managers who speak the language and can engage more directly with clients: “We are introducing more SaaS based products, more license based products, cloud based products, with less implementation costs, and shorter sales life cycles, so these are very important in terms of CEE countries, where we have identified up to 200 potential clients.”

 

Agreeing to cooperate

Back to Mafisz for Balázs Faluvégi’s take on the ability of Hungarian Fintechs to expand to other countries. Is there a quality, a style to Hungarian Fintech that can help this? He repeats his earlier comment that the scene is very much B2B focused, with no significant B2C activity. More specifically as to style, it’s about a ‘cooperation-led mindset’. The B2B focussed companies don’t really ‘have big public dreams’ that they will be the biggest company in 3 years. “They know they have to work hard. Sure, they can grow quickly, but they tend to stand with both feet on the ground.”

The cooperative mindset comes not only because Hungarians are so friendly towards each other, or to foreigners. “The reason is that these are circumstances in which you have to work together to be able to build up something, because the market is not developed enough to be out on your own, especially if you’re a B2B company. So you have to work together: as clients, as partners, as suppliers. It’s traditionally not so common for older people in Hungary to cooperate, but people in their 20s or 30s really cooperate all the time, and the mindset is there.”

I’m curious to know about the Hungarian language, that notoriously difficult and very ‘private’ barrier to international communication. (And that’s not just my personal view, because Hungarian is often assessed as being in the top five most tricky languages to master, not being an Indo-European language). But Bálázs says that everyone in Hungary under 45 working in the ecosystem speaks English: “It’s a default thing to have your second language as English.”

I comment that I’ve come across some media and design agencies based in Budapest that don’t even have a word of Hungarian on their websites, they’re so focussed on international customers, and reaching out to them using English. Balázs agrees that with almost all of the Hungarian Fintechs working in English, his home language is no barrier to companies expanding outside the country. As we speak, he’s just heard from a Mafisz member which has landed a cooperation agreement with a Portuguese Bank to sell a factoring function. Hungary and Portugal wouldn’t seem to be obvious trading partners, but clearly it works.

So are there any Hungarian Fintech companies that are particularly interesting?

SEON

 

A Series A success

Balázs is enthusiastic about cyber security firm SEON Technologies which received the biggest ever Series A funding in Hungarian Fintech. Around 2018 the company consisted of just the two founders in a shared office, while now there are almost 100 employees onboard. The funding round raised €10 million, through the Venture Capital team at Creandum, known for backing Spotify, Klarna and Bolt. Angels for the Series A also included founders from N26, SumUp, and ComplyAdvantage as well as the ex-CFO of Revolut. That’s an impressive roster of support, and a demonstration that Hungarian Fintech is really starting to make waves. András Fischer is also a fan of SEON, and incidentally, SEON has supplied some interesting background to the funding journey on their website. It seems that it is possible to ‘have big public dreams’ and bring them to fruition, with SEON providing a great example of ambition and rapid growth. Of course having exactly the right product at the right time counts greatly, and a glance at SEON’s use case page shows how comprehensive the company’s approach is.

 

Fintech in 24 dimensions

But what about Balázs himself? With three books already to his credit – on Basic Investment; Exit Strategies; and Environmental and Social Governance – plus many Blogs, and regular articles for one of Hungary’s most visited websites, he sees the distant future as occupied with more writing and consultancy.

In the meantime, there are the goals of Mafisz to pursue, and then there’s BlueOpes, founded in 2017. The company offers a ‘Smart, Values-based, Investment Platform’ which Balázs says operates in 24 dimensions. While I’m trying to get my head around that information, he explains that one of the earlier co-founders, Ferenc Szalai, previously worked as a physicist on the Large Hadron Collider project at CERN, which might explain the apparent complexity. “The point is that we are trying to consider as many factors as possible, while asking as few questions as possible from end users.” (In a later note from András Rung of the Ergomania UX-UI Design Agency, I learn that Ferenc was actually one of his first ever clients, working with mcule, ‘To find and order molecules online’).

So like Ferenc, does Balázs know his way around molecules and advanced particle acceleration? “I was a typical portfolio management investment advisor, and one of my clients was Miklós Kovács, who became the other BlueOpes co-founder. He had a lot of trust in me and we always discussed things a lot, and then bumped into each other at a cultural event in Hungary. And we started talking…”

I’m reminded of Bálint Fischer’s story of how a chance meeting at a conference eventually led to Dorsum’s first UK client. Sometimes the networking thing is so important.

Blueopes

Balázs continues with the story of BlueOpes: “Miklós was in his early 30s and had a good income. But we got talking about how to handle people who don’t have enough money to become a private banking client. And we came up with ideas about making it digital. We’d used some digital tools back in 2013, but they were just software tools, and we said that we had to make it totally scalable and fully automated: A B2B Robo Advisor. But we didn’t start it right away.”

Originally the idea was to make it B2C, and grow big and fast, but of course not every plan goes exactly to script. Nevertheless Balázs is happy with progress, and says there may be an announcement about the future of BlueOpes before too long. I try to probe a little more, but for the time being all 24 dimensions are firmly closed!

 

Growing in size and confidence

So overall, what seems to be the story with Hungarian Fintech?
It’s a market which is growing, and appears to be gaining in confidence. While B2B dominates – not least because the home market is small and limited for B2C applications – there is steady expansion, and more Hungarian Fintechs are looking outside their domestic market. They are doubtless encouraged by the success of companies such as SEON, and Dorsum’s advance into new geographic territories, proving that perceived ‘trust issues’ from western European countries can be overcome.

Indeed, with a good base of well-qualified young developers and IT people, and the cost advantages of nearshoring, Hungarian Fintechs appear to hold some high value cards. Backed by a very forward looking National Bank, and the clear goals of Mafisz, there also looks to be strong support for further positive developments. And as well as outward-looking initiatives, the Hungarian Fintech Association’s bridge-building to other international associations promises further education opportunities and cross-pollination of ideas.

 

That extra distance

One of the factors which I detect in the Hungarian story is ‘going the extra distance’. Is it part of the Hungarian character to need to do more, or even prove more? It does seem to be a thread that runs through the conversations I’ve had – that there’s a feeling of being smaller players from a smaller country, and therefore having to ‘punch above your weight’ (a term used in Boxing to describe a lighter fighter contesting a heavier opponent).

Which takes me back to a snippet Greg Csorba told about Dorsum winning some business with MPL, the Hungarian postal service. “When we receive a list of requirements, we always try to think about what’s missing, and what could be there that the client didn’t think of. Many times there’s something obvious, when someone doesn’t see the forest for the trees.”

MPL

When MPL brought up the subject of baggage tracking, Dorsum suggested it should be connected to Facebook so that people could write about when their package arrived. The post was traditionally thought of as really slow – snail mail – so it was difficult to change people’s perception of the service. However with the Facebook connection, it has become possible for people to say, ‘Wow, my package arrived the next day!’ So slowly but surely, the perception of being old-fashioned has begun to change. It’s a simple example of added value which was not initiated or even requested by the client, and which cost virtually nothing to include in the offering. And yet that example of creative thinking may have been one of the factors in winning the MPL business.

So, Hungarian Fintechs going the extra distance?
You can bank on it.

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