The target date for the entry of the Republic of Croatia into the Eurozone is still set to 1 January 2023. In a year, in July 2022, it will be two years that Croatia is in the European Exchange Rate Mechanism (ERM) II, and if we meet all the criteria, we will be able to seek the approval of the EU Council to join the Eurozone. But while the start of 2023 is the first possible date of entry, some forecasts claim that not all the requirements will have been realized by then.
The fulfilment of the criteria related to public finances – which are a condition for full access to the Eurozone – still largely depends on the duration of the coronavirus pandemic, i.e. whether it will blow up again this autumn. In the event of a return to a pandemic-induced lockdown, no significant recovery can be expected. Bulgaria, which joined ERM II together with Croatia, currently has a somewhat more conservative estimate of the date of transition to the euro – their set date is 1 January 2024 – and the credit rating agency Fitch also predicted that this date is more realistic for the introduction of the euro in Croatia.
However, in addition to the macroeconomic criteria necessary for joining the Eurozone, it is very important to be aware of the technical and technological prerequisites that banks and other financial institutions need to meet in order to ensure a quality transition to the new currency.
Most Croatian banks have started their euro changeover projects in the first quarter of this year, at the same time as other commercial and regulatory projects. In Slovenia, a country which went through this process and introduced the euro back in 2007, where it was estimated that as much as 90% of the total cost was allocated to IT, transition projects lasted up to 3 years. However, we must know that banking core systems are much more complex today than at the time when Slovenia introduced the euro. This means that the transition processes are more complex, so it should be expected that there may not be enough time to rearrange the systems by the target date.
In addition to the lack of time, a further problem for domestic financial institutions could be the lack of IT resources, which is increasingly pronounced today. Nowadays, the need for IT staff is growing, and it is increasingly difficult for companies which do not have IT as a core business to hire professionals. As a result, they are increasingly turning to outsourcing, for which demand could increase further due to the changeover to the euro.
Outsourcing in this case can be performed in several ways.
The simplest way is to expand existing teams within the company’s internal IT with new developers. This method has the advantage of flexibility – team size can be easily increased according to needs. The main disadvantage is that new developers need time to learn business knowledge and rules, and older team members often do not have enough time for this. Furthermore, there is a limit beyond which team enlargement no longer makes sense, as more time is spent on onboarding new people than saved by the expansion itself.
Another way is to hire consultants who already have experience with similar projects in other countries. This approach is good because it saves time and ensures that mistakes that have already been made are not repeated. Disadvantages can be resistance within the internal IT team, and a high cost of the hired specialists.
A third way – one of Serengeti’s specialties – is outsourcing individual parts of the system to external teams. Thus, the maintenance of individual applications or systems that can be wholly separated from the core system is given to an external team for the sake of maintenance and development of new functionalities, and developers from the internal IT team are transferred to strategically more important projects. This method is good because developers who are in a company’s internal IT make do easier and need less time to become fully productive in comparison to hiring new employees. Furthermore, they are often satisfied because they get to switch from working on a less important system to working on something strategically important. The continued quality of the outsourced system is ensured by a service level agreement (SLA) and a good transfer of knowledge to the new team.
Outsourcing is a good solution, and sometimes the only one, for accelerating the development of large IT projects. Introducing the euro is a short-term project, and it will be impossible for most financial institutions to complete it using only internal resources. Whichever outsourcing model you opt for, Serengeti is a good choice because of our extensive experience in similar projects in the BFSI sector, top experts, and excellent ratings from our satisfied clients.
IT systems of companies outside the financial sector will not be needing such complex changes, so there will be enough time allocated. The problem of adaptation costs remains, which will certainly be negligible in the time of recovery from the pandemic.
It’s because of these reasons that we expect the introduction date of the euro to be moved to 2024 – or even 2025 – depending on the situation with the pandemic, the convergence criteria and the possibility of adapting the IT systems of government services, banks and other companies, which will allow for more time to prepare for the transition.
Our software development department for the BFSI industry consists of over 60 developers, consultants, testers, and business analysts. We have completed more than 300 different projects, and have many satisfied clients, which is confirmed by our ratings on Clutch, where we have been included in the Top 5 Croatian B2B companies for 2020 with an average rating of 4.9.
One of the projects we are especially proud of is the maintenance and development of new functionalities on the core banking system of a large bank, which you can read more about in our Finance Expertise sheet.