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At a recent conference in Budapest, Hungarian banks claimed they are not worried that generative artificial intelligence (AI) would rewrite the current banking system, but claim that many fintechs and bigtechs have an unfair advantage. Meanwhile, the central bank outlines new plans to boost digital payments in the country.
Executives at major Hungarian banks have said they are unconcerned by the threat of new market entrants gaining territory through generative AI, noting that use of AI is already well established in banking.
“We have not rewritten our strategy because of the debut of ChatGPT — we are continuing with our plans,” said András Becsei, deputy CEO of Hungary’s largest bank OTP and president of the Hungarian Banking Association, while speaking at Portfolio’s Financial IT Conference in Budapest.
According to Becsei, all the “quick wins” from AI have already been implemented, such as the use of big data for risk-scoring models, automated credit extensions and fraud detection.
However, he said, incumbent banks will continue to invest in more advanced AI use cases to ensure they remain competitive.
OTP has a generative AI-empowered supercomputer in the making, which is targeted at performing banking-specific duties such as enhanced bank card fraud detection, international anti-money laundering (AML) compliance and improved customer service.
On the consumer side, Bescei said the “banking sector-specific Hungarian ChatGPT” will result in more secure banking and better consumer services.
AI expectations and reality
Although AI and machine learning have long been used in the financial sector to improve efficiency, costs and speed, AI gained widespread media attention following the launch of ChatGPT last November.
Since then, several industry experts have raised concerns that it may turn the existing order upside down, either for the best or the worst.
But executives of major Hungarian banks agree that new forms of AI are not a threat to their competitiveness, and that they have already deployed AI successfully.
“The only difference is that now customers are also aware of AI being with us,” said Tamás Léder, head of Hungary at Revolut.
The bigtech threat
Bank executives generally seemed confident that they are in a good position to use AI and compete with new AI-powered business models; however, they raised concerns about fintechs and bigtechs.
According to Becsei, fintechs and bigtechs enjoy preferential regulatory treatment, which puts banks at a disadvantage in certain areas.
Previously, Bescei has often spoken out against this approach by regulators, which allows fintechs to reap the benefits of bank-financed infrastructure with less regulatory oversight.
He also pointed out that Hungary imposes heavy taxes on locally registered banks despite the competition they face from bigtechs.
As bigtechs operate on a global scale, they can survive in one particular jurisdiction without necessarily generating a profit there.
“If you put this all together, it does not send a good message to Hungary-registered banks — that we are at a regulatory competitive disadvantage, with a massive tax burden, and the need to compete with new players with great financial power that do not want to make a profit in a particular market," said Bescei.
“It poses the question to policymakers whether this is the right direction, as it favours cross-border providers to serve the Hungarian market."
Hungary steps up efforts to level up instant payments
The conference came two days after the Hungarian central bank (MNB) announced an overarching strategy to boost the use of digital payments in the country.
The strategy aims to reduce the current level of 60 percent use of cash to at least 40 percent and level up instant payments.
A key element of the plan builds on introducing new use cases for Hungary’s national instant payment system (AFR), which launched in March 2020.
In a relatively unique setup, all banks in the country were mandated to switch to the new system and all at the same time.
Although the main theme of the last decade was centred around building the necessary infrastructure, the new strategy focuses on incentivising adoption by moving beyond the initial use case of peer-to-peer (P2P) transfers.
The strategy identifies seven areas of development, such as payments inclusion, promoting innovation and competition, and encouraging digital payments at small businesses.
It will measure success through 18 indicators, such as the level of digital payments at accepting merchants and the proportion of digital payments against cash in value and volume.
Eörs Huba, the managing partner at IFUA Horváth consultancy, said it is a HUF11,700bn (€31.5bn) opportunity, with a potential starting user base of 4m.
Huba’s estimations are based on the concept that new instant payments use cases, such as NFC, QR code and deep links, could win a significant share of current cheque payments, online purchases and in-store payments.
These payment methods currently account for €5.1bn, €5.1bn and €21.3bn respectively.
Huba argued that Hungary's 4m smartphone owners are all potential users, which represents around 40 percent of the nearly 10m country.
By comparison, Huba said it took eight years for Hungary to reach 1m bank cards in circulation after card payments were launched in 1988.
The government intends to incentivise the development and promotion of new instant payments use cases through various measures.
One such measure will exempt instant payments from the country’s unique 0.3 percent transaction tax that banks and payment service providers (PSPs) must pay when funds are moved.
Additionally, banks will be prohibited from charging consumers any fees for the use of instant payment products.
Speaking on the sidelines of the conference, Bence Sármay, country manager for Hungary at Visa, told VIXIO they welcome the government’s efforts to boost digital payments.
However, as the tax exemption places card payments at a disadvantage, he said that Visa would like the same tax treatment to be applied to card payments.
