The war against fintechs in Hungary continues

A new front has opened up in Hungary between fintech companies and the traditional banking sector. In June, the Government voted to introduce the transaction tax on fintech players, such as Revolut, Wise, and BINX. The transaction tax has existed since 2012, and after each transfer, banks have to pay 0.45%. 

The aim is supposedly to level the playing field between fintech companies and domestic banks, but in reality, it seems that the lobby of traditional financial institutions has won, and the consumer will pay the cost.

We have analyzed the increasingly strict Hungarian fintech regulation before. However, this new development adds another perspective: the law already raises many enforceability issues and bucks the trend supporting the proliferation of fintech companies across Europe.

Why now, why this way?

According to the Hungarian government, the amendment ensures equal treatment between market players. Why should fintech companies be exempt if domestic banks are subject to the transaction tax? 

This simplistic argument fails to consider that fintechs and banks operate very differently. Banks provide a whole stack of financial services, while fintechs are often still trying to scale. Fintechs also typically have smaller profit margins. Last but not least, they’ve introduced real competition to traditional banks - and stifling their growth during the scaling phase is, to say the least, counterproductive.

The consumer pays the bill

As always, the consumers will feel the consequences of any measures that stifle competition and innovation the most. Fintech companies will certainly not swallow the new tax burden: as EU Tech Loop has warned before, the costs will eventually be passed on to customers.

Hungary’s market may be small, but political moves that make it harder and more expensive for fintechs to grow (just as they’re becoming real competitors to banks) will hurt local consumers by limiting access to better, cheaper, and more user-friendly financial services. 

Fintech companies have created healthy competition precisely by showing that it can be done differently, more transparently, cheaper, and more user-friendly. According to a February analysis by Telex, a popular Hungarian site, fintech solutions are particularly popular among young people and entrepreneurs looking for fast, mobile-based, international services.

Banking lobby in the shadows

For traditional banks, the rise of fintech is essentially a market loss process. It is no coincidence that regulatory efforts against fintechs are often interpreted as orchestrated by the local banking lobby.

While the official narrative stresses the need to “level the playing field”, the underlying reason may be more of a protection of the status quo.