Poland positions itself as tech hub at heart of Europe

Proudly hosting a tour for visitors around the 14th floor of Warsaw’s Nowa Zebra Tower, Marta Nowicka, who leads the sales effort for the city’s Business Link co-working and “business accelerator” initiative, talks about how the concept, 12 years in the making, is now bearing fruit.

More than half of the tower’s hot-desks and permanent offices – loosely based on the Google Campus idea – are now rented, and tenants are coming in from the UK and Germany, as well as other parts of Poland.

“Warsaw is a very comfortable place to live right now, compared to the cosmic expenses of London,” says Ms Nowicka, pointing out young entrepreneurs reclining on rows of multi-coloured bean-bags, swinging sofas and congregating round a new-age coffee machine claimed to be the city’s best. “We can become a real hub for Europe.”

And key to this ability to attract business in uncertain times is Poland’s geographical position at the heart of the continent and the excellent English language skills of its inhabitants. “Institutions are coming here, because they want to remain in the EU. We offer West European quality at East European prices,” says Tomasz Pisula, president of Invest in Poland, the country’s agency set up to promote foreign investment.

The city has proved particularly attractive to technology companies, and Mr Pisula, a former banker with Spanish group Santander, describes the fintech sphere as “a very hot” market. “Polish financial and banking services are among the most sophisticated in the world,” he says, with the country well advanced not just in the creation of mobile apps, but also in the processing of “Big Data”.

This early adoption of mobile technology has served the private banking world well. “Poland is one of the leaders in the digital space as a country,” confirms Tomasz Pol, division head of retail products and brokerage services at the branch network of Citi Handlowy in Warsaw. 

“Almost 100 per cent of clients are communicating with us through digital channels and 99 per cent of transactions are through our digital platform or over the phone.” 

This is unheard of, even in very sophisticated markets like Hong Kong and Singapore, he believes. “Other countries are stuck with practices which Poland left behind years ago.”

This highly developed technological backdrop means the Polish market is a difficult one for disruptors to enter, because the new developments have already happened and few institutions have any real catching up to do.

Many Polish banks implemented technological solutions with a single “kangaroo jump” in retail banking, which quickly spread to wealth management units, says Malgorzata Anczewska, head of the private banking department at mBank, which controls an estimated 8 to 10 per cent of the local wealth market, which has been going for just 22 years, established soon after the collapse of the communist system.

It is a market in which global players such as UBS and Credit Suisse have floundered, according to locals, while a handful of domestic firms plus the foreign players teaming up with Polish partners have flourished.

This has been because Polish firms have understood the Polish mentality and that of surrounding former communist states, which also supply clientele to Warsaw’s financial institutions. It also places Polish banks well to serve customers further afield, believes Mr Pisula at Invest in Poland. 

“Emerging markets feature countries distancing themselves from dictatorships. So Poles have a unique advantage with these clients. We remember the fall of communism and know how to talk to these people.”

The post-authoritarian Polish mentality, although evolving to embrace international influences, also prizes real estate as a tangible asset and favours domestic stocks over foreign, with a tendency to safety.

“More than 70 per cent of our private banking customers are entrepreneurs,” says Ms Anczewska. “They accept the risk in their own company, so when they are buying external assets, they are looking for conservative investments, with capital protection,” with increasing appetite for capital market-linked products provided by all the major banks. 

Investment funds, which are seen as bread-and-butter products in many more developed private banking markets, are also gaining in popularity.

“This is something they now have to consider, even the more conservative customers,” says Ms Anczewska. 

Increasingly these products are also providing international diversification for clients. “Three years ago we were surprising our customers when we were showing them products not invested in Poland,” says Citi Handlowy’s Mr Pol. “But now they are accustomed to this.”

Rather than playing super-safe, the Citi view is that wealthier Poles are ready for this “second leg” of financial innovation, but have been held back by inertia from more traditional players. “People felt they were missing opportunities to invest in other countries,” he says.

But these customers, until now strongly influenced by economic cycles, are about to fall prey to three even more fundamental forces affecting Poland’s private banking market, and indeed Warsaw’s financial centre as a whole. These are the encroaching tide of regulations, the effects of the UK’s Brexit referendum due to the historic link between the two countries’ populations, and the tendency of the new nationalist-leaning government to build a more inward-looking state.

Not surprisingly, in the face of these threats it is difficult to ascertain what the private banking offers will look like in years to come and how clients will respond, but big changes are certainly on the horizon.

Banks are “still in the preparation process” when it comes to responding to Europe’s MiFID II directive about the regulation of intermediaries selling financial products, because the Polish regulators have yet to redraw the rulebook, says Ms Anczewska. But bankers are united in that the changes are likely to significantly alter their business models when it comes to how fees are received, with Poland’s significant commissions for fund sales paid to intermediaries likely to be curtailed.

“Banks in Poland have enjoyed very substantial incentives from management fees,” admits Andrzej Zabek, head of the private banking department at Bank BGZ BNP Paribas. “The level of management fees in Poland is very high compared to other markets. It is still a very young market.”

But under MiFID II, the fee level will be exposed, leading to consolidation of institutions, with smaller boutiques relying on external distribution networks most likely to suffer, believes Mr Zabek. For the customer, things may be brighter, with fees likely to go down as a result of greater transparency. 

Regarding Brexit, many Poles who have spent time in the UK are now slowly redrawing future expectations to embrace Europe as a whole, rather than focusing specifically on running their business in the UK, Ireland or Poland, according to bankers, who are increasingly expected to consolidate holdings digitally
across several jurisdictions.

But while the referendum in the UK, the US presidential vote and forthcoming elections in Europe are all part of a trend to more closed societies, there has so far been little direct impact on Polish clients, says Mr Zabek.

“Those clients who are doing business globally will continue doing it and are feeling opportunistic about the future,” he says, with more of his clients diversifying globally in reaction to poor recent performance of local markets.

They seem more concerned about increasingly restrictive conditions at home than the geopolitical changing tides. “When I talk to our clients, the word they are using more often than before is ‘unpredictability’. They are not convinced that tomorrow, the sun will be as bright as today,” says Mr Zabek. “The Polish entrepreneurs’ opinion is that it is much more difficult for them to take investment decisions and take more risk.”

Yet most financiers remain cautiously optimistic that Polish cities will grow as regional financial centres, particularly taking on global operational business for private banking institutions, following the lead of Citi, Credit Suisse, HSBC and BNP Paribas. All have regional or global operational outsourcing hubs in Poland.

“Poland is not the only country trying to take on this business,” says Mr Zabek. “But it is getting easier to travel here and language is not a barrier as everyone speaks English. This is clearly a country with a lot of potential.”