Konstantin Tserazov: “Armenia: FinTech Can Unlock the Truly Potential of Economy and Finance”

The key issue for foreign investors is the opportunity to invest capital and repatriate profits. The free flow of capital is equally important when individuals from various countries come to reside or work.

Armenia has proven itself to be a financially convenient country in which businesses and individuals can easily send and receive money. The development of FinTech in Armenia has made a significant impact, propelling the country to an international level as an attractive destination for tourists, migrants, and investors.

Deeper Integration with the West

The Armenian financial system's flexibility is clearly evident on its path towards deeper integration with the West. Remarkable news in this regard came on April 3, 2024: Ameriabank was sold to the Bank of Georgia Group PLC, a UK-based entity. The new key shareholder has investors such as BlackRock, the world's largest investment fund, and JPMorgan Chase, the number one U.S. bank in terms of asset valuation, backing it. Thus, Ameriabank gains access to the world of global finance via its investors. However, it's not just about attracting global investors; it's also about developing the local economy.

In May, this financial institution began offering online home loans aimed at the Armenian Diaspora abroad. Loans are available for local property purchases, renovations, or construction, regardless of the applicant's origin or location. Income from abroad is considered for loan applications, and permanent residency or registered income in Armenia is not required. Loans are available in local currency (Armenian Drams, AMD), U.S. dollars, or euros for terms of 5 to 30 years.

Digitalization and the application of FinTech have led to 98% of the bank's transactions being conducted online. FinTech ensures that all key aspects of loan operations are performed digitally.

Mergers and acquisitions (M&A) are on the rise in Armenia's banking sector. For instance, Ardshinbank recently struck a deal to take control over HSBC's Armenian branch.

..Not Only Towards the West

Armenia's pivot is not solely toward the West. The country maintains strong economic ties with other members of the Eurasian Economic Union (EAEU), as evidenced by the surge in money transfers within the EAEU during the first nine months of 2023, reaching $3.8 billion – a remarkable 31.3% annual growth. Notably, Russia fueled 71% of these transfers, demonstrating a significant 42% year-over-year increase.

In terms of diversification, the United Arab Emirates (UAE) became the top investor in Armenia's real sector in 2023, surpassing Russia for the first time, with a net investment of $250 million in foreign direct investment (FDI). However, the EAEU as a whole remains important, with total net FDI from EAEU countries reaching $305 million.

More Ways to Connect to Global Financial System

Armenian banks are considering linking their payment services to credit cards issued by foreign banks outside Armenia. Upon successful completion of a standard compliance procedure, clients can use their cards for these services.

Armenia’s banks use SWIFT for financial transactions. However, the country feels the enormous economic and financial potential of Asian countries and the Global South and reacts to it.

Currently, we see how Armenia deepens ties with India. The arrival of the Indian payments system, Unified Payments Interface (UPI), in Armenia is anticipated. UPI provides a simple, phone-based payment system that uses phone numbers for account identification and instant transfers through QR codes. By directly linking to bank accounts, it simplifies transactions for smaller merchants, removing the necessity for additional hardware such as card readers.

UPI facilitates direct money transfers between accounts and leverages Google Pay in India for added convenience. This integration could enable seamless cross-border payments between India and other countries. The FinTech sectors of India and Armenia stand to benefit significantly, enhancing cooperation between the peoples of both countries.

Yerevan is diversifying beyond reliance on Mastercard, Visa, Google Pay, and Apple Pay by exploring new logistical routes for goods, including plans for a high-speed transport corridor that would bring large volumes of Indian goods to the EU market through Armenia. Additionally, China UnionPay has established a presence in the country's financial landscape. Both Acba Bank and Converse Bank have begun issuing China UnionPay cards.

Digitalization and the development of new digital routes for money transfers are crucial in this direction. Neighboring countries are aware of this significant trend. For instance, during his official state visit to Armenia on April 15, 2024, Kassym-Jomart Tokayev, the president of Kazakhstan, emphasized, “Our cooperation in new fields, such as digitalization and finance, also has a great future.”

The Situation in the Economy

Armenia recorded a GDP growth of 12.6% in 2022, with a high of +8.7% in the previous year. The forecast for 2023 is +5.7%, and eyes are on the growth rate for 2025. If Armenia experiences a rising growth tempo in 2025, it will indicate that the economy has successfully harnessed the value of rapid digitalization.

The Central Bank of Armenia identifies accelerating domestic demand, reducing debt, and increasing credit potential as key challenges. These factors may exacerbate excessive demand, potentially hindering the correction of the base inflation rate and inflation expectations. This situation suggests that a portion of internal demand can be externalized, and the burgeoning sector of money transfers in the current economic circumstances creates additional value when viewed from a macroeconomic perspective.

FinTech Development and Money Transfers Market

FinTech is a real driver of the Armenian economy, demonstrating an annualized growth rate of 20%. The country has several innovative hubs, and FinTech contributes over $1 billion in annual value. This rise has also received support from prominent international structures.

For example, the EBRD extends its loan program aimed at supporting the development of small and medium enterprises, which are crucial for the Armenian economy. In June 2024, the EBRD backed a $15.7 million loan to one of the technology centers in Armenia, to help them open a new hub promoting innovation and economic growth.

The FinTech payments market in Armenia is represented by players such as Idram and Mobidram, which have significantly developed their online services. HayPost has its own e-wallet app called 'HayPost Pay.'

Crypto exchange services are also prevalent in Armenia, especially in the capital. There are a few physical Bitcoin stores in the center of Yerevan where one can buy or sell the oldest cryptocurrency in the world, with some offices having a fixed commission fee of just $10.

In Armenia, the educational background of people working in the IT and FinTech spheres is often highlighted. Local FinTech and IT professionals with deep technical knowledge and a good understanding of modern FinTech are in high demand in the local labor market. European and American companies frequently hire local specialists to work in their EU and US offices.

FinTech Can Potentially Boost the Local Stock Market

Currently, the Armenia Securities Exchange (AMX) is the primary venue for the local stock market. While the banking sector is well capitalized, with over $14.5 billion in total bank deposits, the stock market has a relatively low volume and influence. This underutilization of the stock market presents an opportunity for FinTech to energize its growth and, in turn, for the stock market to fuel local FinTech companies' expansion.

Currently, the local stock market has only about a dozen companies listed. This is a significant decrease from the mid-2010s when several hundred enterprises were listed on the AMX. Many businesses now seek financing through bank loans, private equity, or venture financing, leading to a smaller proportion of stocks in the securities market, which is primarily composed of debt-related securities.

The process for companies to go public (IPO) in Armenia is relatively straightforward. Several Armenian banks offer brokerage and underwriting services, and some of these banks allow users to buy or sell securities through their mobile banking apps. International brokers also provide access to the Armenian stock market.

Retail investors in Armenia have potential access to a diverse range of local companies, and if they choose to invest even a small portion of their bank holdings, the local stock market could experience a significant boost.

Armenia's top banks are increasing funding for local small and medium businesses (SMEs), which are crucial to the economy, employing 70 out of every 100 workers. Nevertheless, it is essential to develop SME financing through the issuance of shares and bonds on the local stock market.

The development of local currency (AMD) financing via the stock exchange will support the local currency and create a new equilibrium in the financial market. Currently, over half of corporate bank loans and one-eighth of retail loans are denominated in US dollars, contributing to a relatively high level of dollarization. If the development of financing via the local stock market creates additional demand and support for the AMD, it will positively impact the Armenian economy.