Intelligence

Lithuania’s FinTech future

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A combination of talent, low taxation and regulation which encourages innovation have made Lithuania a world class FinTech hub.

In 2017, Lithuania was ranked by the World Economic Forum as one of the most innovative countries in the European Union, alongside the United Kingdom and Sweden. Meanwhile, according to the World Bank Doing Business Report 2018, Lithuania ranked third for ease of doing business, with the third-lowest corporate tax rate in the EU (0-15 per cent), and the second-lowest personal income tax rate (15 per cent). No wonder the country is home to a growing number of FinTech start-ups.

According to Invest Lithuania, the country is home to 117 FinTech companies, 35 of which opened last year only, employing more than 2,000 people.

“What is really tilting the scales in the decision-making process is time,” said Marius Jurgilas, a board member at the Bank of Lithuania. “It’s not about monetary cost or regulatory burden, it’s about how much time do I have to invest to get a decision? Firms want certainty and quick decisions.”

Favourable regulation

Lithuania can guarantee both. Mr Jurgilas highlighted the quick authorisation process and broad choice of business models, ranging from electronic money or payment institutions to specialised banks, as some of the key elements of Lithuania’s FinTech regulatory regime, as part of the bank’s key strategic goals for up to and including 2020.

Start-ups can obtain an e-money or payment license in just three months (four if the preparation stage is included), which is two to three times faster than in other EU jurisdictions. Additionally, initial capital requirements for bank licenses are five times lower than in other EU countries.

In January 2018, the Bank of Lithuania announced the launch of blockchain sandbox platform-service. Domestic and foreign companies will be able to develop and test blockchain-based solutions in the regulatory and technological sandbox platform-service codenamed LBChain, set to be created by the Bank of Lithuania.

“This platform will contribute to the creation of better conditions in Lithuania for the development of the FinTech business and innovation-friendly regulation, as well as help the Bank of Lithuania keep pace with technology innovations that change financial institution activities,” explained Mr Jurgilas.

“By creating an innovation-friendly space, we aim at ensuring the best possible conditions for the further development of financial technologies, creating the most favourable environment for FinTech companies in the whole of the Nordic and Baltic region,” said Vitas Vasiliauskas, chairman of the board of the Bank of Lithuania.

In addition, FinTech firms are not subject to regulatory sanctions within the first year of operating within the country, while remote video Know Your Customer (KYC) rules allow firms not based within Lithuania to open an account in the country without maintaining a physical presence.

“Lithuania has put a lot of effort in recent years into developing the infrastructure and regulation that fosters FinTech development,” Justas Saltinis, CEO of DEBIFO, and invoice financing platform, tells Emerging Europe.

“The ability to get an e-money license faster than anywhere else in Europe, for example, is one of the most attractive features of the Lithuania’s FinTech ecosystem. The introduction of a specialised banking license by the Bank of Lithuania has also drawn some interest. Start-ups can benefit from the sandbox and strong support from the local community and government agencies such as Invest Lithuania,” he continues.

Founded in 2015, DEBIFO is living proof of the positive environment which allows start-ups to grow. Today, DEBIFO has an active invoice portfolio of seven million euros, having helped more than 300 SMEs fund 65 million euros in invoices.

“In the first half of 2018, the number of clients grew by 32 per cent, revenue improved by 50 per cent and our actively managed invoice portfolio increased by 85 per cent. The portfolio structure remained similar to last year – trade, transport, manufacturing and employment sectors accounted for the largest share. We expect to continue increasing our number of clients during the next year as we see many opportunities in our local and foreign markets,” Mr Saltinis adds.

Post-Brexit success

Leading companies like IBM AIG, Western Union and Nasdaq all currently have offices in Lithuania. However, this could be just the beginning as Brexit is set to bring more opportunities. United Kingdom-based FinTech startup Revolut has already announced that it has set up a subsidiary office in the country to combat the UK leaving the EU.

Its Vilnius-based team will be responsible for accelerating ambitious growth targets across Lithuania as well as strengthening the service in Latvia and Estonia.

“Lithuanian talent has been building Revolut from the very beginning. The company has always had close ties with the country and the launch of our local team is another step towards strengthening our relationship. We will be planning our further growth based on the availability of the most talented professionals in IT and customer support in the market,” said Andrius Biceika, country manager for the Baltics at Revolut.

Lithuania is betting that Brexit can help it become a global FinTech hub, as the Eastern European country seeks to attract British companies setting up subsidiaries in the EU.

“We are not saying that we will be attracting top firms from the FinTech hub of the world, which is and always will be London, to the new booming financial sector in Lithuanian,” points out Mr Jurgilas. “But there is a huge flow of firms — and we want to participate in that flow — who want to hedge the risk of Brexit.”

“In light of Brexit considerations Lithuania is one of the best destinations to head for,” adds Mr Saltinis adds. “We have a large talent pool of young, English-speaking IT and finance specialists, and Vilnius, the capital of Lithuania, offers great infrastructure for business set-up as well as high quality of life.”

Talent pool

Talent is another key aspect of Lithuania’s attractiveness as a FinTech hub. With a population of 2.9 million, there are 31,500 IT professionals in Lithuania. And the level of proficiency in English among young professionals is at 84 per cent.

The country is also ranked as the eighth best in the world by Bloomberg for the percentage of graduates enrolled in higher education, with a large number of students undertaking degrees in subjects such as science, mathematics or computing, thus meaning that the country has a ready-made workforce suited to the needs of many incoming foreign FinTech firms.

“The main purpose of cooperation is to create an environment conducive to financial innovation and promote the development of innovative business(es). Lithuania senses global changes and keeps pace with financial innovations. A perfectly developed infrastructure, close network of contacts, and favourable geographical location provide proper conditions for competing with other European countries. This year, we intend to initiate regulatory innovations that would facilitate the activities of FinTech companies in Lithuania,” said Loreta Maskaliovienė, the country’s vice minister of finance.

According to Invest Lithuania foreign investment in the ICT sector has grown by 70 per cent over the past few years.

Nasdaq, for example, has been present for quite some time in Lithuania, through its merger with OMX (the Helsinki Stock Exchange) in 2008, and has witnessed the rise of the IT sector.

Arminta Saladziene, CEO of Nasdaq Vilnius Services, says the company takes into consideration a range of factors when investing in a country. Among those are technology and communications infrastructure, a well-educated pool of talent, and the quality of life. “Lithuania scores well in all of these,” she says.

Google also opened an office in Vilnius to be closer to the Baltic area.

“Seeing how digitally savvy people in these countries are, we believe this region is well positioned to take full advantage of the single digital market initiative in the European Union. We’ve seen Lithuania, Latvia, and Estonia steadily climbing in various innovation and ease of doing business rankings. We’re here for the long run,” said Vytautas Kubilius, Google’s country business development manager for the Baltic States.

Looking ahead

According to the Bank of Lithuania, what unites many of the FinTech companies that come to Lithuania is the desire to conquer the European market.

So far Lithuania has been characterised by an exceptionally large number of successful cryptocurrencies, money transfer and similar start-ups.

“We have been in the global top three in the ICO field according to the volume of attracted investment,” the head of Startup Lithuania Roberta Rudokienė tells Emerging Europe. “If those cryptocurrencies had been converted they would have totaled more than 500 million euros.”

FinTech development has a government priority since 2016, when the country first began to make a name for itself as a FinTech innovator offering a favourable environment for the development of blockchain projects.

“We believe that we must not only take advantage of financial innovations, but also control the potential risks of money laundering and terrorism financing as well as guarantee consumer and data protection and cyber security,” Vilius Šapoka, Lithuania’s minister of finance tells Emerging Europe. “By creating a secure, transparent and clear legal environment, we want to attract foreign investment and promote the development of innovative business in Lithuania.”

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