The number of people in Central and Eastern Europe (CEE) who have accessed at least one online service has risen by 15 per cent points since the start of the Covid-19 pandemic, according to the new Covid-19 Digital Sentiment Insights survey by McKinsey & Company. At the peak of the pandemic, there were almost 12 million new users of online services – more than the population of Slovakia, Croatia, and Slovenia put together. Prior to the pandemic, 61 per cent of consumers used digital services; following the lockdowns imposed in various countries, that figure had grown to 76 per cent.
Digital Challengers revisited
In 2018 we published a series of reports on the rise of “Digital Challengers” across CEE. We pointed out that robust digitisation could act as the next driver of sustainable growth in the region, potentially contributing 200 billion euros of additional GDP by 2025. We also made a number of recommendations for how to realise this potential and ensure more growth than in a “business-as-usual” scenario.
Of course, when we made our recommendations, we did not foresee a pandemic transforming the world as we knew it. Covid-19 is a human tragedy, affecting all of our lives. It is also having an increasing impact on the world economy and the process of digitisation. CEE is no exception here: besides the economic challenges of declining business activity, growing unemployment, and expanding budgetary deficits, we are witnessing a shift in virtually every aspect of life in the region towards online channels.
With this in mind, we decided to revisit our data on “Digital Challengers” to see how well CEE countries were prepared for the disruption caused by Covid-19, and whether they are now managing to digitise as fast as their populations. We will publish our full findings in the autumn, focusing in particular on the changes that individuals, businesses, and the public sector need to make, from providing telemedicine services to online education and e-government services. In the meantime, we present some of our key findings below.
Our new analysis suggests that the 2019 digital economy in CEE was roughly two per cent above our previously forecasted 2019 “business-as-usual” scenario, reaching a value of around 94 billion euros. However, CEE countries achieved only 80 per cent of the target levels we calculated in an “aspirational scenario”. In light of the rapid migration of consumers to digital technologies driven by the Covid-19 pandemic, the CEE region has an opportunity to capture the momentum for future growth. Embracing digital technology in the coming years may accelerate digitisation of the region.
Digital adoption accelerates by age, geography, and sector alike
Our survey reveals rapid digital adoption by all age groups and geographies, not just traditional “early adopters” – young professionals living in large cities. Younger generations (people aged 18–44) led the way with regard to digital adoption in all countries in CEE, both before and after lockdowns were imposed. But the digital adoption rate also grew significantly during lockdown for consumers aged over 65, a group whose increased level of medical risk creates a strong incentive to access services online. In fact, this age group showed the strongest growth across the region, with the number of users increasing by 40 per cent.
Furthermore, we found that the number of services in different sectors accessed digitally by CEE consumers has almost doubled since the start of the pandemic. Prior to the pandemic, consumers accessed around two services online; now, they access around four. The most popular online services are banking (accessed by 59 per cent of consumers) and telecommunications (45 per cent).
This comes as no surprise: these two sectors had been investing significantly in digitisation for several years prior to the pandemic. The number of consumers accessing government services online has more than doubled, but these services received the lowest satisfaction ratings from users. The uptake in e-commerce is also visible: the number of consumers using online channels for grocery shopping doubled; for retail it grew by 70 per cent. Entertainment also doubled its number of users, with 39 per cent of consumers accessing services during the pandemic. Digital penetration is lowest for the insurance sector (accessed by 21 per cent of users) and the travel industry (17 per cent); here, much room for digital acceleration remains. However, given the travel restrictions that were in place, low usage of digital channels in the travel industry comes as no surprise.
Businesses must act
The change in customer demand for digital channels witnessed in the last six months is unprecedented. The ability of businesses and the public sector to envision new ways of operating will be crucial to successfully weathering the crisis and ensuring long-term sustainability and growth in the next normal.
For many businesses, customer interaction patterns shifted dramatically as lockdowns were imposed. Some companies innovated, expanding their business models and making strategic decisions at a pace hard to imagine prior to Covid-19. Take, for example, Booksy, a Poland-based application for finding, scheduling, and managing appointments. Prior to the pandemic, the company was focused mostly on the beauty sector. The impact of the lockdowns was massive, leading to a 90 per cent drop in activity on the application. Within a few weeks, however, the company had managed to expand its business model by forming partnerships with numerous banks, an electronics chain, and other businesses, enabling users to make appointments with them without the need to physically wait in line – something that is especially important during the pandemic.
Thanks to its quick reaction, Booksy saw a 25 per cent increase in its visitor numbers, 10 per cent of them focused on the new services offered. As for many other companies, the situation during the pandemic was not easy for Booksy. They had to review their cost base and even terminate some of their employees’ contracts. However, after rethinking the business model, they hired new profiles of specialists to help with the expansion and continue on their trajectory of growth.
Companies are also showing greater interest in online channels as a way of staying engaged with their existing customer base. For example, Allegro, the most popular online shopping destination in Poland and the tenth most popular in the world, increased the number of its partners by 15,000 between April and June 2020, achieving three-quarters of the level of growth seen in all of 2019 within just three months. Similarly, Mall Partner, the online marketplace of a prominent Czech e-commerce player, saw its partner network grow three times faster after Covid-19-related restrictions were imposed.
These examples underline the strategic areas that we believe businesses across CEE must focus on in order to seize the opportunity and emerge stronger: recovering revenue, rebuilding operations, rethinking the organization, and accelerating the adoption of digital solutions, especially in light of the increased customer expectations of the availability and quality of digital services. These areas, which we examine in detail in our forthcoming report, will be critical to functioning in the next normal.
Short- and long-term opportunities for the public sector
Governments also needed to speed up their digital efforts in light of the immediate disruptions created by the pandemic. Countries across CEE have launched innovative solutions to help tackle the crisis, including Covid-19 tracing apps, e-passes for travel during lockdown, digital assistants and chatbots for health topics, and online applications for relief packages for companies.
They often developed these solutions by cooperating with the private sector. This was the case, for example, with the Croatian Financial Agency’s so-called “Covid score,” a digital scoring mechanism that determines, by linking multiple government databases, how vulnerable a company is to the effects of Covid-19. This universal score also helps determine a company’s need for additional financing. Another example is the initiative No Quarantine on the Internet, designed to help small and medium-size enterprises successfully shift to online. No Quarantine on the Internet was created by Enterprise Lithuania, a non-profit agency within the Lithuanian Ministry of Economy and Innovation.
Even after the Covid-19 crisis passes, policymakers should focus on adding new e-government services, improving existing applications, and improving the environment for the entire digital ecosystem. This will not only accommodate the increased digital adoption by citizens but will also enable the public sector to improve its productivity and process efficiency and support the creation of a digital economic ecosystem. Doing this successfully involves collaborating with other CEE governments (for example, to learn about and scale smart solutions mentioned earlier) and also the private or nonprofit sector (on, for example, building the digital talent for the future) or indeed enacting policies to speed up the digitisation of both (such as facilitating the use of cloud technologies and remote working).
The Covid-19 pandemic has caused a massive shift in digital habits. Many people have started using online channels for services for the first time, and 70 per cent plan to use them to the same degree or more after the pandemic. This is clear proof that the changes brought about by the pandemic are structural and here to stay.
Businesses and governments in CEE should ensure that these new converts not only stay online but genuinely benefit from online services. The digital world will be key to ensuring a thriving economy during the recovery – and in the next normal that will follow.
This article was co-written with Alexandru Filip, managing partner of the McKinsey & Company Bucharest office and a leader of Digital and Analytics growth platform in Central Europe, Borys Pastusiak, associate partner at the Warsaw office, and Ivana Valachovicova, engagement manager at the Prague office.
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