Financial intermediation in the Republic of Macedonia is at a relatively lower level than the average in the European Monetary Union. In this text, we analyze the reasons for this situation based on data on access to certain financial services for citizens as well as access to technology published by the World Bank. The low level of economic development is the main reason for the lower level of financial intermediation. However, the financial institutions encouraged by the development of new technologies can contribute to the further development of financial intermediation.

The banking system, mandatory private pension funds and insurance companies have the highest share in the financial assets/money of the financial system and, almost constantly, contribute the most to its absolute growth. The other segments of the financial system almost constantly record a relatively dynamic growth, but still individually and together, occupy a very small part of the total assets of the financial sector.

According to the latest available data published by the National Bank, the financial assets/broad money of the financial sector in the Republic of Macedonia amount to 111.6% of the Gross Domestic Product (GDP). At the same time, the financial assets/broad money of the financial sector in the European Monetary Union, as it can be seen in graph 1, amount to 219% of GDP at the end of 2021.

Graph No.1: Financial assets/Broad money % of GDP, 2021

Source: European Central Bank and National Bank

According to the presented data, in the Republic of Macedonia there is still a large space for the deepening of financial intermediation.

Since 2011, the World Bank has regularly published the Global Findex Data Base report, which is a source of data on global access to financial services. The 2021 edition is based on representative surveys of a sample of 128,000 adults in 123 countries during the COVID-19 pandemic. The database contains indicators of access and use of formal and informal financial services and digital payments, and also identifies the reasons for the low level of access and use of financial services by women and poor adults.

The main reason for the low level of financial intermediation in Macedonia is certainly the lower standard of living. As an indicator of the level of standard of living, we analyze the data on realized savings.

Graph No. 2: Percentage of citizens who managed to save money, 2021

Source: World Bank

(Macedonia, EMU)

The data in graph 2 show that only a modest 38% of the population in the Republic of Macedonia managed to save some money, in contrast to the European Monetary Union where this percentage is 77%. Money saved is the main basis for the financial intermediation development.

Availability of financial services

The availability of financial services is certainly an important factor for deepening the financial sector. The data in the World Bank database indicate a relatively lower availability of financial intermediation services in the Republic of Macedonia.

Graph No.3: Transaction account (%, over 15 years), 2021

Source: World Bank

(Macedonia, Euro area)

As it can be noted in graph 3, 15% of the population in the Republic of Macedonia does not own a transaction account, that is, it is not part of the financial sector in the country at all, whereas more than 95% of the population of the European Monetary Union owns a transaction account. However, this is a better performance than the figure for the entire world, according to which 26% of the world’s population does not own a transaction account.

The biggest reason for a lack of a transaction account ownership is a bank account ownership of a family member (49%). Other reasons for lack of transaction account ownership include: lack of money, expensive financial services, lack of personal documents, lack of trust in the financial sector, as well as religious reasons.

Graph No.4: Percentage of the population that owns/uses debit card, 2021

Source: World Bank

(owns a debit card, Uses a debit card, Macedonia, Euro area)

Graph 4 shows what part of the population owns a debit card and what part uses it. The data indicate that in 2021 only 53% of the population in the Republic of Macedonia owns a debit card, whereas a modest 37% use it. At the same time, in the European Monetary Union, as much as 88% of the population owns a debit card, whereas 81% actively use it.

A debit or credit card ownership is actually an indirect indicator of the level of the shadow economy in a country. Namely, the higher percentage of the population uses debit and credit cards or other modern electronic payment methods, the lower the gray economy will be. Credit card ownership data show a similar situation.

Credit card ownership data shows a similar situation.

Graph No. 5: Percentage of the population that owns/uses credit card, 2021

Source: World Bank

(Owns a credit card, Uses a credit card, Macedonia, Euro area)

The graph 5 indicates that in Macedonia less than 20% of citizens over 15 years of age use credit cards, whereas in the European Monetary Union more than 40% of citizens use this service. The website of the National Bank has numerous data on the type of credit cards that banks issue. According to the data, almost all bank cards issued in the Republic of Macedonia are digitized, but less than 1% of the cards support payments through smart devices for making contactless payments.

Technology contribution to financial intermediation development

However, in addition to the level of the standard of living and the availability of financial services, the development of financial intermediation is influenced by numerous other factors, especially technological development. First, we analyze the indicators of access to technology that show the conditions and opportunities for the financial sector development.

Graph No. 6: Access to technology, 2021

Source: World Bank

(has access to the Internet, Owns a mobile phone, Macedonia, Euro area)

According to graph 6, 88% of the population in Macedonia has access to the Internet, which is only three percentage points lower than the average in the European Monetary Union. At the same time, the percentage of the population that owns a mobile phone is higher in the Republic of Macedonia. Such data indicate that the technological conditions represented by these two indicators are at a high level and enable the development of financial intermediation similar to that in the European Monetary Union.

For the financial sector development and deepening, it is certainly necessary to use this technology.

Graph No.7: Uses the Internet to check the transaction account, 2021

Source: World Bank

(Macedonia, EMU)

Graph 7 shows that a modest 43% of citizens older than 15 years use the Internet to check their transaction account, in contrast to citizens of the European Union where more than 70% use modern technology to check their money balance. Despite the high percentage of citizens who use the Internet (almost the same as in the European Monetary Union), a small proportion use the Internet to check their transaction account.

Graph No. 8: Made digital payment, 2021

Source: World Bank

(Macedonia, EMU)

In addition to using the Internet to check the financial account balance, citizens also use it for digital payments. The data show that 66% of citizens who use the Internet to check their transaction accounts also made a digital payment via the Internet. In the countries of the European Monetary Union, this percentage is really high, i.e. 96%.

In the World Bank database, there are additional numerous data that represent indicators of the use of technology in financial intermediation, such as online sales, saving with a mobile wallet, and the like.

Brief conclusion

This analysis of the World Bank data points out that our financial sector, mostly the banking sector (86% of the total financial sector), needs to further invest both in access to new technologies in financial intermediation and in technological and financial education of citizens. Certainly, the Fin-Tech industry is expected in the upcoming years to take its place and significantly contribute to the financial sector development and deepening in the Republic of Macedonia.