Fintech Spotlight: Czech Republic

Turning our attention to Eastern Europe, the beautiful country of Czech Republic, steeped in history, catches our attention. With focus of the fintech world concentrated on hubs such as New York, Silicon Valley, London and Berlin, Prague seems to run under the radar for the most part but given that Prague is the fifth most visited city in Europe, it can’t afford to fall behind. Looking at the figure below, we see that there are a number of successful fintech firms comprising the Czech ecosystem.​

​In 2016, the transaction value in the fintech market amounted to US$4,032m with an expected annual growth rate (CAGR 2016–2020) of 16.5 % resulting in the total amount of US$7,424m by 2020. The market’s largest segment is the segment “Digital Payments” with a total transaction value of US$4,020m in 2016. This seems to be a recurring trend given the high level of inefficiencies and outdated technology that occupies this space, essentially inviting new entrants to innovate within the payments sector.

Like Germany, the Czech Republic has a strong engineering infrastructure that exists on both the production and education side, facilitating a culture of innovation and resourcefulness. Czechs have a long-standing engineering history. Under socialism, Czechoslovakia was considered, together with the German Democratic republic, the most technically advanced country in the Soviet bloc. The Czech Technical University in Prague, one of the largest in the country, is also the oldest non-military technical university in Europe.

The university’s long tradition of cutting edge science and engineering ensues from the work of many great personalities — including the famous physicist Christian Doppler and renowned engineers such as FJ Gerstner and J Bozek.

Alena Vranova, director of the Czech startup behind the Trezor bitcoin vault, Satoshi Labs, points out that the emergence of bitcoin-related businesses may be partly due to its strong education system, “particularly when it comes to technical training”.

Czech Republic jumped onto the virtual currency map in 2014 with an incident where “blackmailers” who claimed that they would release the Ebola virus in the country unless they were paid one million euros in bitcoin. The crisis was averted with no bitcoin disbursed or people injured. One of the reasons that this occurred in the Czech Republic may have been because the profile of bitcoin was elevated in the country when in 2013, the Ministry of Finance of the Czech Republic issued legal guidance for buying and selling bitcoin.

In 2015 the growth of bitcoin in the Czech Republic was recognized by the fact that the country had 112 merchants who accepted bitcoin with nearly half of them in the capital city of Prague. It also had 8 bitcoin ATMs in the country, which made them the 12th most popular country for bitcoin ATMs. This may not sound like much, but the same year, there was only 1 bitcoin ATM in New York City. These statistics gain even greater significance given that as of June, 2015 there were 55,000 bitcoin wallet downloads in a population of 10 million where smartphone penetration is 42% of the population and active internet usage is at 77%. As these figures grow, it would be very interesting to see the development of the virtual currency. In late 2015, the Czech Republic’s version of PayPal called GoPay announced that it was accepting bitcoin for its third-party payment system. This was made possible by cooperation from Bitcoinpay and allowed bitcoin to be accepted by over 2,000 merchants in the country.

Furthermore, the very first mining pool called Slush, was in the Czech Republic in 2010, and it continues to operate today with nearly a million BTC mined since it began. The ability to buy bitcoin in the Czech Republic is now so widespread that a Czech citizen’s options for buying bitcoin rival those for Americans and most Europeans.

The history of the nation also plays a part in its growth and development with the past history of totalitarianism in the country impacting the trust of citizens in the government and public institutions which this lends itself well to appeal of the virtual currency seen by many who view the virtual currency as an attractive proposition believing that less regulation by the government will provide more power and prosperity for businesses and citizens, which correlates with the decentralized and “nationless” perception of bitcoin and virtual currency.

The anti-institutional sentiment is complimented by a strong DIY attitude. There seeming to be a prevailing libertarian sentiment among some cohorts of the population, who challenge the status quo by seeking alternative ways of doing things. On this Vranova adds, “Our nature allows us to find solutions even with very limited resources.”There is no secure hardware wallet? Okay, let’s create it. There is no solution to decreasing rewards from mining? Do a mining pool.” Petr Žílka, a spokesperson for Parelelni Pollis, a non-profit organisation based in Prague that focuses on the potential sociopolitical impact of new technologies, particularly those based on the idea of decentralization, attributes this attitude to the Czech Republic’s communist heritage. He further adds that there is an old Czech custom: “if you don’t cheat the state you cheat your family”, highlighting the level of confidence in the regulators and a tendency/desire for innovation and alternate paths. The above figure emphasizes how the Czech Republic is seemingly lacking in the infrastructure for SME Financing making it a prime location for innovation within the nation as well as for international fintechs and entrepreneurs to take initiative and step in to provide accessibility to credit for SME’s thereby boosting overall growth in the country.

As far as crowdfunding in the Czech Republic, the most common form is reward-based crowdfunding, which has existed in the Czech Republic for four years now and is growing every year. For example the Hithit platform raised 80% more money in 2015 than in 2014. The second most used form of crowdfunding in the Czech Republic (that is actually not publically perceived as a form of crowdfunding), is P2P consumer lending. It started to accelerate during 2015 when was launched. This platform has built its public recognition on the emphasis that people who do not match the criteria of banks should nevertheless have a chance to get a loan. SymCredit and Pujcmefirme represent Czech P2P business lending. These platforms are slowly gaining the trust of the public equity crowdfunding has not been an active form of financing in the Czech Republic so far. Just one campaign has been successfully funded.

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