Governments wanting to develop their financial sector have reason to look at Georgia with a mixture of envy and admiration. The country’s small, resilient banking system has weathered decades of regional crises better than the world’s leading finance hubs. The central bank — the National Bank of Georgia — is highly-regarded internationally and has a “track record of credible policy making [which] has been important in preserving macroeconomic and financial stability”, according to a recent note from Fitch Ratings.

Its two biggest lenders, TBC Bank and Bank of Georgia, are also a source of strength. They control 70% of the country’s banking assets and are both listed on the London Stock Exchange. “Their shareholding is packed with huge institutional investors from Europe, the US and the UK. Their level of corporate governance is the same as you’d expect from any other European capital,” says Otari Sharikadze, managing director of local investment bank Galt & Taggart. 

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Together with the dozen other banks active in Georgia, they have created a saturated market. “I don’t foresee any standard foreign banks entering the market now, seeing the competition,” says Mr Sharikadze. “However, I do expect some neobanks to come in. The fintech industry could drive the entrance of new players.”

Fintech to the fore

While foreign banks have had mixed success in Georgia — HSBC and Société Générale withdrew in 2012 and 2016, respectively — the picture is much rosier for the growing tribe of non-banks looking to supplement or supplant traditional lenders. “Georgia is starting to position itself as a fintech hub for the region,” Mr Sharikadze says, referring to its neighbours Armenia and Azerbaijan, but also further afield to the likes of Uzbekistan. “Our wish is to copy the Estonian model. They’ve attracted IT companies and turned it into the fintech hub of eastern Europe.”

Tbilisi has some homegrown fintechs gaining international attention. One is Optio.Ai, which uses artificial intelligence (AI) and natural language processing to categorise and advise on spending habits. Another is Lightspeed, which chief executive and co-founder Mariam Rusishvili describes as cloud-based infrastructure for small business lending with an AI-driven decision engine. “It’s not only for banks, but also for other fintechs, e-commerce platforms and marketplaces,” she says. 

In 2020, the central bank upped its support by launching a regulatory sandbox and publishing a framework for open banking that requires lenders to open their application programming interfaces and allow third-party access to customer data. Open banking is being piloted with traditional banks, but it is understood that other entities will have access in due course. “This will help fintechs create different solutions for bank customers, and create a whole new level of competition between financial entities,” says Ms Rusishvili.

She sees room for other fintechs to thrive in Georgia, but warns the “huge shortage of capital” is a problem, adding that “an investment fund entering and actively investing in Georgian tech would be a boost”.

The country’s size also presents natural limits. “It’s amazing for piloting, starting, testing and validating, but for any fintech company to scale you need to leave the market,” she adds. Fortunately, the harmonisation of Georgia’s financial regulations with those of the EU — in pursuit of accession to the bloc — have lowered hurdles to expanding overseas. With the help of an investor from the Baltics, Lightspeed is setting up operations in Lithuania. “We will establish a subsidiary and sales team there which will open up our market,” says Ms Rusishvili.

Early mover advantage

One foreign fintech company that moved into Georgia early is Creamfinance, an online lending platform that uses algorithms and machine learning to instantaneously evaluate and score consumer loan applications. Founded in Latvia in 2012 and now headquartered in Poland, it was recognised as Europe’s fastest growing fintech in 2016. It opened shop in Tbilisi just two years after launch. “Georgia is a smart market with good internet coverage; taxes are low and business works quite well. That’s why Creamfinance decided to enter,” says Alexander Lomadze, its country managing director. 

While non-bank lending is now well-established in the country, it was a different story seven years ago. “It was tricky at first as customers were used to going to a bank and doing things face-to-face. Applying for credit with just a couple of clicks was an innovation,” Mr Lomadze recalls. “But we saw this mentality change. People realised it was much more convenient to apply for loans online rather than go to the bank.”

He now characterises Georgia as a market willing to adopt more efficient ways of working. “People’s innovation readiness is quite good. If you bring a new product, they will try it and will want to use it.” According to a recent report by Visa, Georgia is among the top three countries worldwide for contactless payments. 

The domineering presence of TBC and Bank of Georgia should not, Mr Lomadze says, deter nimbler players from entering the market. “When you are big you can’t move fast,” he says. “But when you are a small, business-oriented company everything is simpler, and the banks can’t compete with that. For that reason, we always have opportunities for smart new ideas and innovations.” As the country’s banking system is largely collateral-based, Mr Sharikadze points to a gap in the market for financing asset-light projects. “This is a difficulty at the moment. A number of companies with very interesting ideas are difficult to finance due to a lack of assets,” he says.

Climbing crypto’s value chain

In May, the National Bank of Georgia invited private sector proposals to help investigate a central bank digital currency. Lightspeed plans on participating via a joint venture with a US company. “There is definitely interest. It will be good for the market,” says Ms Rusishvili.

The country is already famous in the cryptocurrency world. Low electricity prices have made it one of the world’s biggest hubs for the hugely energy-intensive activity of crypto mining. Bitfury, one of the world’s biggest bitcoin miners, set up local operations back in 2014. But with electricity costs rising since last year, Mr Sharikadze expects the industry to move beyond mining. “There is an ecosystem of companies starting to develop crypto exchanges and enter other industries linked to blockchain,” he says. “I think we will climb the value chain.”

In association with Invest in Georgia. Writing and editing were carried out independently by fDi Intelligence.