Enabling Technologies

Exploring Lithuania as a FinTech Hub

MEDICIGlobal Head of Content

Lithuania could easily be one of the friendliest countries for FinTech startups looking for a pathway into Europe. In fact, the country ranks third for ease of doing business in Doing Business 2018 for Europe & Central Asia region. Lithuania’s corporate tax rate (0-15%) is the third-lowest in the EU, and personal income tax rate (15%) is the second-lowest, allowing for capital accumulation in the hands of consumers and entrepreneurs – 25% of FinTech startups in the country are bootstrapped.

Lithuania has certain invaluable advantages for FinTech startups in the age of evolving bank-FinTech narratives when collaborations and M&A are on the rise. For example, startups can obtain an e-money or payment license in just three months (four with preparation stage), which is two to three times faster than in other EU jurisdictions, Invest Lithuania, the official agency for Foreign Direct Investment and Business Development in Lithuania, emphasizes.

Additionally, initial capital requirements for “lite” bank license (license for challenger banks) are five times smaller than in other EU jurisdictions, and the license can be obtained in just six months (eight, if we count preparation). Moreover, according to Go Vilnius, the initial capital requirement for setting up a bank in Lithuania offering the usual range of banking services is the smallest in the Eurozone and amounts to €1 million – as mentioned earlier; this is five times less than the requirement applicable to banks offering a full range of banking services, including investment services.

“We feel a huge interest in developing FinTech activities in Lithuania. The fast-growing number of licensed companies shows that participants in this highly potential sector willingly choose Lithuania as their home. This offers new opportunities for businesses and higher quality services for consumers,” said Marius Jurgilas, Member of the Board of the Bank of Lithuania.

Reuters recently reported that the country has seen a threefold increase in license authorizations for FinTech firms headquartered outside of Lithuania since 2015, with several applying after Britain’s June 2016 vote to leave the European Union. Totally, 18 have secured licenses in 2017, and 16 applications were under review as of December 2017, the edition adds, citing central bank data. One of Britain’s biggest names in FinTech, Revolut, was among those applications, indicating Brexit as a factor in their decision. Three other money transfer or payment firms also told Reuters that EU access was key to their decision: Singapore-headquartered InstaReM, and TransferGo and Contis, both based and licensed in Britain, with operations in Lithuania, Reuters shares.

“We were looking for a perfect HQ location in the EU. In Lithuania, we found a FinTech-friendly and fast regulator, as well as excellent international-grade talent. With all this, Lithuania is hands-down the best European base for cutting-edge FinTechs.” – Prajit Nanu, Co-founder & CEO, InstaReM

In 2017, the Bank of Lithuania issued an approval for the Electronic Money Institution (EMI) license to the company. InstaReM plans to employ 25 Information Technology and Customer Service specialists and gradually build up its team in Lithuania. The company’s team in Lithuania is going to be responsible for providing services for the whole of Europe and the North and South Americas, Invest Lithuania reports.

Invest Lithuania reports that there are around 117 FinTech startups (out of which almost 50% are payments startups) currently operating in Lithuania, with 35 added to the community in 2017. The vast majority of those startups (96%) see Europe as their target market. The majority of Lithuanian FinTech companies – 70% – are looking for banks as a distribution channel/partner, and 38% have already partnered with financial institutions. Interestingly, 38% of FinTech startups in Lithuania are revenue-funded.

FinTech startups in Lithuania get direct access to SEPA (reaching 34 countries) and are able to issue their own IBANs through Bank of Lithuania APIs. After full implementation of SEPA requirements in Lithuania in 2016, national limitations related to holding a payment account abroad were removed, Bank of Lithuania notes. Payment account owners in Lithuania gained the right to receive their salary, social benefits or other payments to any account opened in whichever member country, or receive funds from payers residing in other member countries (national institutions, employers, etc.) to their accounts opened with Lithuanian banks.

Talent is another important aspect of Lithuania’s attractiveness as a gateway into Europe and as a high-potential market of its own. With 2.9 million population, there are 31,500 IT professionals in Lithuania. And the level of proficiency in English among young professionals is at 84%.

The talent capabilities in the country are quite impressive. Danske Bank’s operation in Vilnius, for example, developed Danske MobilePay, which is now on 90% of Danish smartphones, and is the leading mobile payment solution in the Nordics. Ride-sharing leader Uber chose Lithuania as the location for its global CSR (critical site reliability) center. Today, the Vilnius office handles 50% of the company’s core infrastructure.

Superior talent comes as no surprise – Lithuania ranks 1st for university-business collaboration in R&D among CEE counties. Moreover, the country is ranked eighth globally by Bloomberg for ‘tertiary efficiency,’ which includes enrollment in higher education and the number of graduates in key innovation sectors. Over ¼ of students in Lithuania are reported to have enrolled in innovation-related studies – science, mathematics, computing and engineering-related fields.

According to the National Audit Office of the Republic of Lithuania, support for R&D and the tech sectors is a national priority in Lithuania. Between 2006-2013, Lithuania spent €411 million to develop its R&D infrastructure and science valleys. Another €679 million will be put into the further enhancement of the R&D capacity over the period of 2014-2020.

To top off the advantages of Lithuania as a FinTech hub, the country offers what is probably one of the most lenient sandbox regulation – no regulatory sanctions are imposed onto FinTech startups for the first year. According to Go Vilnius, companies operating in the regulatory sandbox are able to offer innovative financial products and test business solutions in the real marketplace, with real customers by being closely overseen by the regulator. The Bank of Lithuania is ready to offer consultations on the go.

“The main purpose of cooperation is to create an environment conducive to financial innovations 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 favorable 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, Vice Minister of Finance.

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 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,” said Marius Jurgilas, Member of the Board of the Bank of Lithuania.

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

Elena Mesropyan

MEDICIGlobal Head of Content

Global Head of Content, MEDICI

Elena is a research professional with a background in social sciences and extensive experience in consumer behavior studies and marketing analytics. She is passionate about technologies enabling financial inclusion for underprivileged and vulnerable groups of the population around the world.