An irresistible bet, but not for everyone: The digital wave will sweep everything away

Living in interesting times can be both a blessing and a curse. And doing business in an era of unprecedented technological transformation is a gamble that not everyone can afford to take. A key element in such a race is organizational culture, which must be focused on innovation and change, first and foremost from within. Thanks to this, companies with decades of history are able to adapt to new developments and remain competitive, while recently formed startups are able to enter the field of the big players and turn the game around.

It is extremely important that innovation is embedded in the spirit of the campaign," commented Vivacom CEO Nikolay Andreev during the discussion INvestments in INnovations: The New Wave, part of the program of the Economic.bg business forum – ALL IN, organized in partnership with the European Investment Bank (EIB) and BRAIT.

This drive for innovation is at the heart of the transformation of the mobile operator, which, after its privatization, managed to emerge from the shadow of the former analog telephone company and become key to the digitization of all other businesses. In fact, the discussion about the future of telecoms has always been on the table, Andreev reminds us, and gives the short answer that everyone came to during the coronavirus pandemic, when mobile infrastructure proved to be crucial to the functioning of business.

Telecoms will de facto be the backbone of the digital world in which we will one day live. We are talking about the digital industry, digital twins, Industry 4.0."

It is also about a wide variety of digital solutions, including in the field of fintech – where the first Bulgarian unicorn, Payhawk, was born. Konstantin Dzhengozov, co-founder and CFO of the startup, also believes that "everything starts with the culture within the company" and the creation of an environment in which "everyone can express themselves." As for the skill set, it must be constantly upgraded with modern tools, and this aspiration must be woven into the team's values.

The question is how to organize ourselves as a company, first internally, and then see how we can transfer this to the clients we work with."

The thorny path to success

Innovation is key, but we must not forget that it goes hand in hand with a series of failures. And this must also be embedded in the overall culture, according to Konstantin Djelebov, founder of the first Bulgarian digital wallet phyre and moderator of the discussion.

One of the most important things is to learn to make mistakes and not be so afraid of them."

Growing pains are inevitable. On the path to transforming Viber from a chat app into a multifunctional platform, including for payments and business communication, there are also plenty of such examples. Before finding the right model, the company tried out different ideas. "At one point, we started asking ourselves what else could run on this infrastructure and tested all sorts of things. We even thought about becoming a gaming company and making mobile games," says Rakuten Viber Vice President Atanas Raikov. When asked why they didn't do it, the answer is very telling:

Well, we failed."

At one point, the company realized that what it was very good at – creating something reliable, secure, and scalable—was not that important for mobile games, where creativity is key. "That's why we moved on to other areas where we are much more successful, such as business services and fintech," Atanas Raykov sums up.

Payments are becoming key to the chat app. Viber Pay already operates in a number of European countries, but not in Bulgaria. The reason is that the country has not yet joined the eurozone. "My personal ambition is for absolutely all the services that Viber offers worldwide and that already make us a super app to reach Bulgaria. But due to such restrictions, even with my patriotic lobbying from within, it will be difficult to catch up."

It is obvious that even for a global company like Rakuten Viber, it is very difficult to fully cover all European countries.

Fragmentation and regulations

Fragmentation is one of the main challenges. Nikolay Andreev gives the example of telecommunications, comparing the US with Europe. "In the US, there are three large companies that invest in and develop infrastructure. In Europe, there are 60 large companies and countless small ones, each of which must make investments to provide the backbone for the digital future."

Konstantin Djelebov draws attention to banking consolidation in the US, which he believes hinders the rapid scaling of fintech companies. "Even when an international company enters the US market, it fails more often than it succeeds," he comments.

A counterexample, however, is the Bulgarian company Payhawk, which became the first domestic unicorn. The company managed to create a product that put Bulgaria on the map of large funds. "When we started, we thought we had a big disadvantage because of the very small local market in Bulgaria. This actually turned out to be our biggest advantage," commented Konstantin Dzhengozov.

From day one, we decided to make a product that is targeted at the global market. We currently have customers from across the European Union, the UK, and the US."

To avoid fragmentation, Payhawk is building the entire infrastructure of the product so that it is not locally targeted but can cover all markets that may one day be of interest to the company.

However, regulation is something that can harm many start-ups in Europe. "Although there are EU-level directives, local regulators often like to impose their own requirements on their specific market, which is understandable to a certain extent, but on the other hand can become an obstacle for young companies to initiate and create a more competitive product," explains Konstantin Dzhengozov.

Galya Dimitrova from IRIS Solutions gives an interesting example with PSD2 and other financial regulations that are being pushed through with the idea of Europe catching up with the rest of the world in digital finance.

But in order for this leveling to happen, we entered the game through regulations. Both banks and non-bank institutions categorically refused to see any business in this and created obstacles."

Small, large... ALL IN: The focus is on the customer

According to Konstantin Dzhengozov, the presence of large banks in these markets is not such a significant problem because such institutions are more focused on their current business model. Meanwhile, with the development of automation, artificial intelligence, and all kinds of technologies, it is much easier for fintech and software companies to create a product that is more targeted at the customer and provides a service that traditional, large players in this sector cannot provide in terms of flexibility and customer service.

This is supported by the forecast that over 60% of all financial transactions by 2030 will take place outside traditional banks, commented Konstantin Djelebov.

Banks still have existing customers that they need to retain, and that is where the big differences come from. But there is no bank today that is not investing heavily in digitization and the purchase of fintech companies, in opening up to the new world," said Galya Dimitrova of IRIS Solutions.

In the spirit of the event, ALL IN – the common ground between all players, including telecoms and communication apps such as Viber – is open banking, she added. According to her, Southeast Europe is already catching up, and services based on open banking will be used by 43 million consumers by 2024.

However, cash remains the biggest challenge in Bulgaria. For example, 44% of monthly payments at Vivacom are made in cash, which makes it difficult to manage the company's expenses.

The change is not only about offering new payment methods and conveniences, but about the whole concept of our economy. "

The main reason for the continuing high volume of cash payments lies in consumer habits. No matter what innovative solutions are offered to them, they will not change their choice until they themselves are ready for digital solutions.

Translated with DeepL.