Hungary in Early Stages of Embracing Fintech
Introduction to Hungary
An overview of Hungary's currency, population and key statistics.
The forint (Ft) is Hungary's official currency, but many vendors also accept the euro. Forint coins are available in denominations of 5, 10, 20, 50, 100, and 200 forints, while banknotes are available in denominations of 500, 1,000, 2,000, 5,000, 10,000, and 20,000 forints.
Magyar Nemzeti Bank (MNB), Hungary's central bank, was one of the first in the EU to launch a central bank digital currency project in 2023. While Hungarian banking authorities have stressed that there is no urgency for a centralised digital currency, they recognize the benefits of retail digital currency.
Approximately 13% of the population in Hungary is unbanked, and the government believes a retail digital currency can improve financial inclusion. Authorities also say a digital currency could encourage healthy competition among payment service providers within the country.
Hungary had a population of approximately 9,627,000 people in January 2023, according to census data. The capital, Budapest, is the country's most densely populated city, with a population of around 1,778,000. A low birth rate and emigration are contributing to Hungary's shrinking population, but a new report suggests that fertility has been increasing in recent years, with 1.52 births per woman in 2022.
Hungarian is the official language of Hungary, spoken by 99.6% of the population. It is a Uralic language, similar to Finnish and Estonian. Hungarians also speak other languages, such as English (16%) and German (11.2%).
Hungary's economy shrank by 0.3% in the second quarter of 2023, following a significant drop in gross domestic product to $178.79 billion in 2022 from $182.28 billion in 2021.
Hungary has the highest inflation rate in the European Union, which remained above 20% between October 2022 and July 2023. Financial authorities in Hungary expect inflation to decline to between 7% and 8% by the end of the year. The MNB maintained its benchmark interest rate at 13% in 2023, significantly higher than in other EU members.
Internet & mobile phone trends
Hungary had a high internet penetration rate of 89.7% as of early 2023. Despite its small size, Hungary has relatively fast internet speeds, with an average fixed broadband speed of 132.23 megabits per second and an average mobile internet speed of 52.45 Mbps. According to 2022 data, 83% of Hungarians own smartphones, with nearly half of them falling in the productive age group of 25 to 34 years. Hungary also has a high social media penetration rate of 72.2%.
Hungary's e-commerce market is one of the fastest-growing in the region. Around 70% of Hungarians have shopped online at least once, according to the World Bank. In 2019, the e-commerce sector contributed €2.2 billion to the economy, and this number has continued to grow in subsequent years due to higher internet penetration.
The country's e-commerce sector is expected to generate $24.4 billion in revenue in 2023, a 19.3% increase from 2022. Experts predict that the market will grow at a compound annual growth rate of 12.0% from 2023 to 2027. Fashion, electronics, and food and personal care are the top product categories in the sector.
Summary of fiscal policy
As economic activity weakens, the Hungarian government has implemented various measures to improve the situation. Fiscally, the government tightened policy in 2022 due to a significant budget deficit; experts suggest that the EU's freeze of funds that year contributed to this decision. Hungary's fiscal deficit hit 4.6% of GDP in June 2022, close to its overall target of 4.9% for the year. To reduce the deficit, the government has cut spending, specifically on investment. It has also introduced a temporary windfall profit tax to generate additional revenue. The government's fiscal consolidation efforts are expected to continue throughout 2023, with Hungary aiming to bring the deficit to 3.9% of GDP. Hungary's public debt may reach 60% of GDP in 2024 and 2025, experts warn, due to higher costs of financing the deficit and Hungary's inability to access EU funds. However, the debt situation has improved recently as Hungary has managed to reduce its foreign currency-denominated debt. Hungary improved its foreign exchange reserves to €38.7 billion by the end of last year. Foreign direct investment is also helping the country manage its debt. From the first to the third quarter of 2022, foreign investment generated €2.6 billion for the economy, covering 23% of the deficit. Since foreign investment is historically resilient to economic crises, it is expected to continue supporting Hungary's fiscal situation in the coming years.
How people pay in Hungary
An overview of how people in Hungary choose to make payments.
Traditional payment methods
The primary traditional payment methods used in Hungary
Visa is the second most popular credit card, after MasterCard, accounting for 20% of the market. Most Visa cardholders use their cards for in-store purchases and e-commerce payments. Visa cards are compatible with popular digital wallets like Google Pay, simplifying the checkout process for customers.
MasterCard is the most popular credit card in Hungary, leading the card payment market by a large margin. Consumers use their cards to make in-store and online payments. While Hungary's adoption of cashless payments is slow compared to other European nations, more than 50% of the population now uses cards for daily payments.
The MNB launched the AFR instant payment system in 2020 to improve the efficiency of domestic payments and reduce cash in circulation, thereby promoting the growth of cashless payments. AFR supports a variety of transactions, including peer-to-peer and recurring payments, and users only need their phone number, email address, or tax identification number to use it. Hungary expects the volume of daily real-time payments using AFR to reach 471 million by 2026.
American Express is not as widely accepted in Hungary as MasterCard and Visa, but it can still be used to settle payments with major merchants, typically in tourist hotspots. Amex cards are known for their travel benefits and rewards programmes.
Alternative payment methods (APMs)
Alternative payment methods
Hungarians use PayPal for peer-to-peer transactions and online shopping. A 2021 survey found that PayPal was the most popular digital wallet, with a larger market share than Google Pay and Apple Pay. However, other digital wallets have started to gain market share from PayPal in recent years.
Apple devices are less popular than Android products in Hungary, but Apple Pay users have steadily increased. Some Hungarians prefer Apple Pay and other digital wallets for mobile commerce, as most online shopping is conducted on mobile devices.
Since 80% of mobile devices in the country use Android, Google Pay is the more popular digital wallet than Apple Pay. It allows users to integrate their MasterCard and Visa cards, streamlining the payment experience.
Payment provider PayU offers a digital wallet service, PayU Mobile, which enables merchants and consumers to conduct transactions via their mobile devices, such as smartphones and tablets.
Accepting payments in Hungary
A guide to accepting payments in Hungary
How to accept online payments in Hungary
Hungary has numerous payment gateway services, each with its own set of benefits and features. However, online payments generally follow the same steps, involving an acquirer, issuer, merchant, and account holder.
1. The account holder initiates the payment by presenting their payment option to the merchant when purchasing goods or services.
2. The merchant sends the payment details to the acquiring firm. After processing, the acquirer will pass the payment request to the payment scheme (e.g., MasterCard and Visa).
3. The payment processor forwards the request to the institution that issues the account to the buyer.
4. The issuer ensures the account has enough funds to close the transaction, approving or declining the payment request based on the fund availability. It will send an authorisation code to the payment scheme if it approves the payment.
5. The payment scheme forwards the authorisation code to the acquiring institution, which then sends the code to the merchant to complete the transaction.
How long does an international payment from Hungary take
International payments vary in processing time due to the involvement of multiple financial institutions and, sometimes, intermediaries.
Bank debit/credit cards: Money can be sent from Hungary using debit or credit cards in minutes to hours, depending on the standard processing time of each bank.
Online money transfers: Online platforms like PayPal can process payments to foreign accounts within minutes or hours, depending on the destination country.
Wire transfers: This traditional payment method may take one to five business days to complete, depending on the number of intermediary banks, the transaction requirements, and the destination country.
Hungarian merchants must pay fees to payment providers for processing online payments, as in other countries. Here are some examples:
Credit and debit cards: Payment processors charge merchants fees for processing debit and credit card transactions, depending on the card type.
Bank transfers: Banks charge merchants for processing transfers, which can either be a flat fee or a percentage of the transaction amount.
Merchants also pay other fees to providers that help them process transactions, such as:
Cross-border fees: Merchants who serve customers from outside of Hungary are subject to cross-border fees, which typically include currency conversion and international processing costs.
Assessment fees: Payment providers may charge fees to cover fraud prevention and network operations.
Monthly minimum fees: Some payment services charge merchants for failing to meet the minimum monthly transaction volume.
Chargeback fees: This fee is charged when a customer returns an item to the merchant, and is part of the refund process.
Security challenges of online payments in Hungary
In 2022, Hungary collaborated with other European nations to crack down on e-commerce fraud, identifying several threats to the sector, including phishing/vishing/smishing attacks, account takeover scams, and triangulation fraud.
One high-profile case involved a group of criminals impersonating a service company. They told customers that the company had a new bank account and asked them to send the service fees to the new account.
This case highlights Hungary's ongoing challenges with online payment security. Hungarian police have warned customers to check the security of their devices and websites before making online transactions. Businesses should educate their customers and staff to identify fraudulent transactions and stay up-to-date on the latest trends.
Key sectors & industries in Hungary
With one of the world's most complex economies according to the Economic Complexity Index, several key sectors make significant contributions to Hungary's economy:
Hungary's automotive industry is a core sector, generating nearly 21% of the country's exports. Over 600 automotive companies employ 100,000 workers. Hungary hosts several major automotive original equipment manufacturers, including Suzuki and Audi. Audi has a large engine plant and a research and development centre in Győr. These manufacturers' large-scale investments have spurred industry growth. They partner with small and medium-sized local automotive firms, which also collaborate with academic institutions to innovate automotive technology.
Hungary is the largest electronics producer in Central and Eastern Europe, accounting for 26% of the region's total production. This sector represents 22% of Hungary's manufacturing production and employs around 112,000 people. In addition to several original equipment manufacturers, Hungary is home to top electronic manufacturing services providers such as Flextronics and Foxconn, which also conduct research and development activities in the country.
Pharmaceutical and Medical Technology
Hungary's pharmaceutical industry is a starting point for companies planning expansion in Central and Eastern Europe. It is one of the country's most advanced sectors, directly employing 15,000 people. In 2021, the sector's revenue exceeded 400 billion forints, with major players such as Gedeon Richter, Sanofi-Aventis, and Hungaropharma leading the way. Most pharmaceutical and med-tech companies have bases in Budapest, Debrecen, Pécs, and Szeged.
Hungary is the only net exporter of agricultural and food products in Central and Eastern Europe. The food industry accounts for 6% of the country's exports, employing over 100,000 people. Most firms (85%) in the sector are micro-companies with fewer than 10 employees. The rest are multinational companies like Nestlé and Unilever. Large producers mostly use domestically sourced raw materials.
Hungary's ICT sector contributes up to 10% of the country's GDP and generates 100,000 jobs. This extensive sector covers multiple sub-sectors, including telecommunications, software and hardware production, and IT services. ICT-related research and development activities drive over 25% of the total research and development expenditure, making Hungary an incubator for software development in the region. Well-known ICT companies such as Ericsson and Gameloft have established offices in the country.
Hungary has about 4.3 million hectares of arable land for agriculture, of which 120,000 hectares are irrigated. Major crops include wheat, corn, and oilseeds. Animal production includes pigs, poultry, and cattle. The agricultural sector contributed 3.9% to the country's GDP and 8.8% of total exports in 2021. Hungary exports grains, meat, animal feed, and vegetable oils. Hungary's agriculture has a positive trade balance, with agricultural imports accounting for around 6%. Its major agricultural trade partners are other EU nations.
Transportation is a growing sector in Hungary, with some companies state-owned and others private. Hungary's landlocked location makes it ideal for transit traffic, and road transport for goods dominates the sector, expected to generate $7.3 billion by 2023.
Regulation in Hungary
The regulatory environment of Hungary
Summary of the regulatory environment in Hungary
The Hungarian government requires all businesses to comply with local regulations to maintain market competitiveness and fairness.
Company law: The law encompasses regulations about the company's establishment, operations, and dissolution. The primary law governing this matter is Act 4 of 2006 on Business Associations (Companies Act).
Employment law: The employment relationship is regulated by the Labour Code, aiming at protecting workers' rights. It encompasses employment contracts and standard working conditions. According to this law, employers must submit employee data to the Hungarian National Tax Authority.
Product liability law: This law focuses on the legal liability of producers and sellers of products to compensate consumers (and even bystanders) for damages or injuries due to defects in the products.
Intellectual property law: Following participation in the EU, Hungary revised its previous copyright law with Act CII of 2003. The intellectual property law protects copyrights, trademarks, and patents.
Competition law: Market competition is regulated by the Hungarian Competition Act. The regulation governs competition and antitrust issues among businesses operating in Hungary. It also contains rules related to the enforcement institution, the Hungarian Competition Authority (GVH)
Consumer protection law: Consumer protection is also discussed in the Competition Act and therefore falls under the jurisdiction of GVH. The law encompasses oversights on consumer rights, product safety, and standards of advertising.
Data protection law: The law governs consumer data collection, usage, and storage by companies. The main national law for data protection in Hungary is Act CXII of 2011 (amended by Act XXXVIII of 2018).
How card payments are regulated in Hungary
MasterCard in 2022 reported that 58% of Hungarians used bank-issued cards for daily transactions, and 72% used cards at least once a month. The MNB oversees payment and settlement systems, including card payments (debit and credit), in cooperation with the Hungarian Financial Supervisory Authority.
Authorities allow creditors to make credit card repayments using money transfers and checks. The Supervisory Authority has also set a maximum annual percentage rate for credit cards equal to the effective base interest rate.
Under the law, lenders cannot charge early repayment fees, and credit card providers must provide consumers with monthly account information. Lenders are allowed to unilaterally revise overdraft and credit card agreements, but consumers have the right to terminate the agreement within 30 days of the revision.
Do I need a licence?
Yes, you need a licence to operate a business in Hungary. The types of business associations under Hungarian laws are similar to those identified in EU nations: private companies, limited liability companies, limited partnerships, and public companies. The steps to starting a business in Hungary are extensive, as applicants must visit various government offices, including the tax office and municipality. Applicants can conduct the registration online.
Payment solutions in Hungary
An overview of how to accept payments from customers in Hungary
Payment gateways and providers in Hungary
Hungarian merchants require payment solutions to help them navigate the complexity of Hungary's payment landscape. Payment orchestration platform APEXX provides a one-stop solution for merchants, allowing them to connect various payment methods and banks to improve business productivity.
Using the payment orchestration layer (POL), merchants can offer the most efficient payment scheme based on each customer's situation. This means that customers will likely see lower fees. There is also less chance of failed payments. It enhances customer experience, ensuring that customers will close the transaction.
Merchants can integrate APEXX's POL with their existing platforms, including the point-of-sale system and online stores. Thanks to pre-configured plugins and APIs, the integration is seamless. Merchants can immediately use the POL's features without sacrificing their workflows.
Cheapest payment solutions in Hungary
To reduce operational costs, merchants in Hungary can make their payment system cheaper by implementing these methods:
Negotiate fees: Merchants who deal with high transaction volumes usually have the opportunity to negotiate better rates with payment providers.
Research payment providers: Before signing with providers, do market research to compare rates so that you can get the best prices possible.
Use alternative payment modes: Traditional payment methods, such as card payments, are usually more costly than e-wallets and bank transfers. Try to offer these cheaper alternatives to consumers.
Improve customer experience: Minimise complaints and refunds by offering clear product descriptions and doing thorough quality control on your products. It will reduce chargebacks and additional fees.
Implement fraud prevention measures: Merchants must employ measures to prevent fraud to avoid chargebacks and extra fees.
Track payment processing fees: Merchants can use tools to track their payment processing expenses and find ways to cut costs further. It is also an effective way to identify price changes by payment providers.
Using payment solutions like APEXX enables merchants to minimise fees without doing all the heavy lifting. The one-stop platforms automatically route payments, improving the cost efficiency for merchants.
BNPL in Hungary
Hungary's buy now, pay later (BNPL) market has seen rapid growth in recent years, especially during the pandemic. In turbulent economic times, BNPL allows Hungarians to afford necessities and provides flexible loan repayments. The BNPL market is closely linked to the rise of e-commerce in the country.
By 2025, the European BNPL industry is expected to reach €300 billion. At that time, Deloitte predicted that BNPL would capture 11% of the continent's e-commerce market. Although there is little information about specific BNPL companies operating in Hungary, some players, such as Twisto, are focusing their operations on Central Europe.