Lithuania, Latvia and Estonia are working desperately to support entrepreneurship, fintech startups and international talent. And they are proud of it. A little over six million inhabitants in a total of three Baltic states is a small market. Under such conditions, entrepreneurs need to be committed to international expansion and scaling up. These include Latvian company Transferwise, worth more than one billion dollars, who are in the business of international money transfers, and well-known Skype – a joint venture between Swedish and Estonian programmers.
There are also many other companies in this sector, such as Vivus or Creamfinance, which are known as the fastest-growing loan service in the world. Mintos is a Latvian P2P lender that is active in more than 50 countries, investing in business loans, consumer loans and even mortgages. Fortumo allows users to make payments in more than 90 countries, whereas Inzmo is the insurtech company offering car insurance, insurance of bicycles, household appliances as well as mobile solutions to traditional insurance companies (with a quick insurance claim processing system – users send a photo or movie to an insurer from a smartphone). The list goes on.
According to a report by the World Economic Forum (WEF), the Baltic states are some of the most innovative countries in Europe, taking into account the start-ups and creativity of workers in existing businesses (in and around the EEA). In the 28 European countries, the three Baltic states are in the top seven with Sweden, which is an important reference point for the Baltics.
Estonian state administration has been using the technology of distributed registries for many years, which is also part of the country’s immunisation against cyber attacks. The creation of the NATO Cooperative Cyber Defence Centre of Excellence was a clear expression of confidence in Estonia’s cyber security. The data of Estonian citizens are in the cloud, which is to guarantee their authenticity and immutability. Intelligent PKI cards allow digital citizens access not only to handle almost a thousand official cases, but also to vote from 2005 on the Internet, and from 2011 through SMS. The innovative e-resident program, in turn, allows you to obtain virtual citizenship and start a business, even without a visit to the country.
Estonia is also a country of digital payments – according to the World Bank, 99 percent of settlements are of such character. Furthermore, Estonia was one of the first countries to provide wi-fi in public places.
Clouds are Brewing
The problem is attracting talent. All the Baltic states have experienced a tremendous wave of emigration (some experiencing up to 20%). In Estonia, 24% of technological workers are foreigners. Institutional solutions are needed. In January, a special visa program for start-ups was launched, enabling non-EU citizens to work in Estonia or transferring existing companies to the Baltic.
The Latvian ecosystem is also a magnet for large financial groups – SEB and DNB banks have operational centres, and the Nasdaq / OMX group has consolidated its Baltic operations in Latvia. Latvia boasts a third position in the OECD by providing access to their fiber-optic broadband internet (60% of users), a very high level of education for the working-age population (41%) and 70% of citizens under 40 speak English.
At the end of last year, the parliament passed a special start-up visa law that provides tax incentives for technology professionals – they can count on additional monthly bonus of £252, with doctoral students receiving social security and tax refunds.
Lithuania has joined the startup system and technology companies not so long ago, but acts at a very rapid pace, by establishing the first regulatory sandbox in the Baltic. Fintech firms with a capital of €1m can obtain a license for payment and electronic money in just three months. This comes with access (through the appropriate application of the Lithuanian Bank) to the Single Euro Payments (SEPA) system, and fintech customers can use IBAN numbers under this solution. The central bank also committed itself to providing a preliminary response to the licensing process. Applying for a license can take place without starting a business (the company has six months to do it), which means no need to freeze assets.
The intention of the Lithuanian authorities is to increase competition in the financial sector, where 90% of the market is controlled by the oligopoly of three Scandinavian institutions: SEB, Swedbank and DNB. New solutions are also expected to attract foreign fintech companies – a British neo-bank Revolut in the area of P2P payments and loans, and Israeli Moneta International, providing e-commerce payments.
Brexit and Fintech
Lithuania seems to be particularly concerned about Israeli entities as their homeland represents a large market for Lithuania’s technological solutions. Lithuania would also like to profit from companies leaving the UK after Brexit; a declaration boldly expressed at the Innovate Finance Global Summit in London in early April by the Finance Minister. Clearly, Lithuania isn’t hiding their aspirations to become a regional fintech hub. It’s worth noting that Barclay’s Bank is a key catalyst in the development of financial technology in Lithuania.
It’s also worth noting that accelerators attract businessmen and IT specialists from Russia, Belarus, and Ukraine, with the value of investment in the technology sector exceeding $1 bn last year. Looking at the dynamically developing Baltic area of financial technology, everyone is struck by the fact that Lithuania, Latvia, and Estonia are very competitive countries. However, there are no common initiatives – if there were, the results would have been much more spectacular.