The financial services sector in Central and Eastern Europe is undergoing significant transformation, with Artificial Intelligence playing a key role. As financial institutions navigate evolving customer expectations and regulatory requirements, new technology-driven solutions are emerging to enhance efficiency, improve customer experiences, and create new opportunities for innovation.
Through our ongoing engagement with fintech startups, we have observed numerous instances where AI has supported financial institutions and technology providers in developing solutions that address legacy infrastructure challenges. Companies in our portfolio, such as FintechOS and Finqware, exemplify how AI-driven innovation can enhance the efficiency of banking and financial services. In this article, we will explore how AI is contributing to the fintech industry, the obstacles financial institutions encounter in adopting AI, and the tangible benefits it is delivering.
Addressing Legacy System Challenges
Managing legacy systems remains a key consideration for financial institutions in the region. Many of these infrastructures, built on previous generation programming frameworks, can hinder the ability to meet the evolving demands of modern financial services. A 2024 global survey found that 55% of financial institutions cite legacy systems as a primary challenge to digital transformation. Key concerns include:
- Inflexibility: Adapting to market changes and evolving regulatory requirements can be complex
- Operational Efficiency: Maintaining and updating older systems requires significant investment
- Data Integration: Fragmented systems limit the ability to gain a holistic view of customer needs
- Regulatory Compliance: Ensuring agility in responding to compliance changes is critical
While AI presents opportunities to address these challenges, financial institutions are integrating these technologies with a focus on compliance, security, and operational integrity. Many institutions are prioritizing in-house AI development and strategic partnerships to ensure responsible adoption. According to the European Banking Authority (EBA), the majority of EU-based financial institutions have moved beyond pilot programs and are actively implementing AI solutions within their operations.
Fintech Investment Landscape in 2024
Despite AI advancements, fintech funding saw a decline in 2024. According to FinTech Global Research, funding in the sector dropped by half, closing with just 1,050 deals—a sharp 62% decline from 2023. Total investments fell to $18.4 billion, down 47% from the previous year.
Why did this happen? Several factors are at play. The broader economic slowdown hit most industries, and investor interest shifted toward defense tech and health tech, where returns looked more promising. Fintech also faces the challenge of working with highly regulated clients, making its growth slower compared to other sectors.
But let’s not get disappointed. As we mentioned also in the last newsletter we’ve sent, there are signs of a rebound, with M&A activity picking up and major players like Klarna gearing up for strong returns.
AI’s Role in Enhancing Financial Services
AI-driven solutions are playing a pivotal role in modernizing financial institutions and enhancing operational capabilities. For example, how many times do you go to the bank now for statements, transactions or some simple operations? Probably less often than you would have done it five years ago. This is proof that the adoption of AI is reshaping multiple facets of the industry, from customer personalization and process automation to fraud detection and financial data processing.
The image below, created by the European Banking Authority, shows on which tasks banks count on AI.
1. Advanced Fraud Detection and Security
AI is enhancing fraud detection by analyzing vast amounts of data in real-time to identify suspicious activities.
Example: Revolut’s AI-Based Fraud Detection System
- Machine Learning for Fraud Prevention: Identifies anomalies and prevents fraud
- Real-Time Monitoring: Flags suspicious transactions instantly
- Biometric Authentication: Enhances user protection
- Impact: Prevented over €550 million in fraud, reducing losses by 30%
2. Strengthening KYC and AML Compliance
As digital finance grows, AI is being used to enhance Know Your Customer (KYC) and Anti-Money Laundering (AML) processes.
Examples: Authologic (Poland) and Evrotrust (Bulgaria)
- Digital Onboarding: Automates biometric data matching with official documents
- Fraud Prevention: Detects synthetic identities and deepfake attempts
- Process Automation: Enhances compliance while reducing operational workload
- Qualified Electronic Signatures: Enables secure, remote contract signing
3. Enhancing Operational Efficiency and Automation
AI-powered automation supports financial institutions in optimizing internal processes and enhancing service delivery.
Example: FintechOS’s Low-Code Platform and Evolv
- Low-Code Development: Facilitates rapid deployment of digital financial solutions
- AI-Driven Automation: Simplifies product management and service personalization
- AI Assistant: Supports a faster delivery of new financial products
- Customer Journey Optimization: Enables seamless user experiences
FintechOS closed its Series B+ round of $60M one year ago from investors such as Molten Ventures, Cipio Partners, and BlackRock, alongside existing investors EarlyBird VC and OTB VC. We are happy to have been with them on this journey since the beginning, witnessing the impact their technology is making on their clients.
4. AI-Powered Financial Data Processing
AI enhances financial decision-making and operational transparency through improved data analytics.
Example: Finqware’s AI-Powered Financial Data Processing
- AI-Powered Transaction Analysis: Categorizes transactions autonomously
- Cross-Bank Data Processing: Improves financial oversight
- Client Benefits: Optimizes liquidity and provides real-time insights
- Impact: Tested on 9 million transactions across 50 banks in 15 European countries with 90%+ accuracy
Navigating Obstacles in AI Implementation
While AI offers substantial benefits, fintech providers and financial institutions could obtain faster results by collaborating on a few implementation tasks.
One primary objective of all those involved in the sector is to ensure the data used are qualitative. A relatively high number of institutions still face complex, fragmented data structures, facing obstacles for training and deploying AI models. Ensuring structured and well-integrated data frameworks can lead to more accurate insights.
Another consideration to be taken into account is the availability of specialized expertise. AI and data science talent remain in high demand, and financial institutions are analyzing if the solution is to invest in developing internal capabilities or collaborate with technology partners to bridge the skill gap.
Regulatory compliance remains a priority. The financial sector is subject to stringent regulatory requirements, and AI adoption must align with frameworks such as GDPR and other financial regulations to ensure transparency, accountability, and security.
Additionally, organizational adaptation plays a role in AI adoption. Transitioning from well-known processes to the new AI-driven workflows requires planning, with a focus on aligning new technologies with broader institutional strategies.
Fintech startups are playing a crucial role in supporting financial institutions with AI adoption. By offering specialized solutions that integrate seamlessly into existing infrastructures, these startups provide a pathway for institutions to modernize at a sustainable pace.
The Road Ahead
The rapid adoption of AI is reshaping fintech in CEE, offering evolving solutions for improving legacy systems. Fintech startups are part of the charge, offering modern solutions that can enhance fraud detection, personalize financial services, and automate operations. Financial institutions that embrace AI-driven innovation will be well-positioned to navigate evolving market demands.
AI’s influence in fintech is just beginning, and its impact will only grow stronger as technology advances. The next five years will be crucial in defining how financial institutions in CEE adapt to this wave of innovation. Curious to see how this will be? Us too!
