For several years, the fintech sector has been expanding rapidly in Lithuania, and its achievements are noted at the international level. In Findexable’s 2021 Global Fintech Rankings, our country stayed firmly in the top ten countries that are most favorable to operate in. What has led to the success of the sector, the challenges it faces, and whether we can claim that this new branch of the economy has reached maturity – fintech experts share their thoughts.
Lina Žemaitytė-Kirkman, Head of the FinTech and Sustainable Innovation Centre Rockit, says that the results of the fintech sector make her very optimistic.
“According to the Bank of Lithuania, during the first half of this year, the number of operations of fintech companies grew almost six times compared to the same period last year. These are very impressive figures, with operations amounting to €120 billion. The fintech sector makes a substantial contribution to the country’s economy and is stronger than ever,” said Ms. Žemaitytė-Kirkman.
She believes that the continuing interest in setting up these types of institutions in Lithuania is also great news. Based on research from Invest Lithuania, there are over 230 companies in the country’s fintech sector, and the Bank of Lithuania is currently considering license applications for 30 more companies. Start-up communities, which share knowledge, experience, and competencies among themselves, contribute to the growth and help companies become more visible and audible.
Good indicators – the result of united efforts
According to Vaiva Amulė, Head of the association Fintech Hub LT, which unites 54 licensed fintech companies, Lithuania’s fintech sector has indeed made significant progress.
“This is not only evidenced by the latest data of the Bank of Lithuania. A few more figures are worth mentioning. Overall, the turnover of all licensed and unlicensed fintech companies exceeded €1 billion in 2020, while in the first quarter of 2021, the financial services sector broke the historical volume of exports of services when it reached €81 million. So, we can see that fintech companies are successfully expanding and growing in our home market – the European Union. Such growth wouldn’t be possible if the companies were operating only in Lithuania,” said Ms. Amulė.
One of the reasons for the rapid growth of the sector is that fintech companies quickly adapted to the pandemic and offered customers flexible access to financial services both in Lithuania and abroad. Another important factor is the now-positive attitude of the Bank of Lithuania and government representatives as well as the legal framework adapted to the fintech sector.
“Currently, the Ministry of Finance and the Bank of Lithuania are working together with the fintech community on the guidelines for the Lithuanian financial technology sector until 2027. I believe that we will continue to pursue the goal of becoming a financial hub in Europe. However, if the work of fintech companies is restricted and work with legal business sectors is forbidden, or they are asked to carry out their main activities in Lithuania, fintech companies will simply leave the country,” said the Head of Fintech Hub LT.
Present challenges: business environment and increasing competition
Martynas Stankevičius, Head of the company developing the Röntgen crowdfunding platform, said that the favorable attitude of the Bank of Lithuania creates great opportunities, while future issues will have to be addressed by bringing together the experience of the sector and the market regulator.
“It is fair that financial businesses are regulated by government institutions. But we should keep in mind that these types of businesses usually have no borders, i.e., they provide services around the world. There is a programmed contradiction in this, because a fintech company will inevitably go international, and in the future, it will have to step up in order to regulate a business established in Lithuania but operating in another country,” said Mr. Stankevičius.
In the present case, it remains unclear which government institutions must supervise the activities of such fintech companies. It may face regulatory uncertainties in the realm of “no one prohibits, but no one permits either”.
“For some time, there has been an unwritten requirement to operate in Lithuania as well. What if a company simply does not want to do so, what if the Lithuanian market is too small for its product? Should it be allowed or prevented from registering here, setting up a business, paying taxes, hiring specialists? We need to understand that just the Lithuanian market is of no interest to a fintech start-up wishing to become a unicorn – unicorns look for a suitable, fast, and non-bureaucratic local legal framework for developing international businesses. With the growing maturity of the fintech sector, I believe that this will become the norm, but the change will require from supervisory authorities the commitment and courage to remain ambitious,” said Mr. Stankevičius.
Ms. Amulė, Head of FinTech Hub LT, sees growing competition – both in product or service quality and for employees – as one of the main challenges.
“Another challenge is the topic of money laundering and prevention. These are global issues faced by the whole financial sector. In Lithuania, fintech specialists are rapidly improving money laundering and prevention technologies, looking for the most effective risk control methods and fintech companies invest up to one-third of their budget in this. This investment brings rewards: in the last Basel AML Index, Lithuania ranked among the top ten countries with the lowest risk of money laundering,” said Ms. Amulė.
The third challenge according to the Head of Fintech Hub LT – uncertainty: “Because this sector is so new, it requires the development or updating of legislative frameworks to enable customers to benefit from the full range of modern financial services provided by fintech companies. But this takes time.”
Despite these challenges, what opportunities do fintech professionals see right now? According to the head of Röntgen, a member of the Innovation Centre Rockit – licensed business-to-business (B2B) activities.
“Our fintech companies can easily take over clients that are large by Lithuanian standards, due to higher quality of service, while by other countries’ standards, such as the United Kingdom – smaller clients. This is because in large countries small businesses do not receive sufficient attention from large banks or service providers. For our fintech companies, these “small businesses” are quite large clients, who can be provided the highest level of service at an appropriate price. This is the way to become a significant-sized alternative service provider not within the boundaries of a specific country, but in a world without borders,” said Mr. Stankevičius.
Will talent shortage halt the development of fintech?
The qualification of employees is also an important factor in the development of fintech. For example, according to data of Invest Lithuania, 52% of the population in Lithuania speaks at least two foreign languages, and 82% of the younger generation speaks excellent English.
“The fintech sector has already created around 5,000 well-paid jobs in Lithuania. The average salary in the major Fintech companies is almost three times higher than the national average – around €3,600, and in e-money institutions – €4,700. This is why, although the fintech sector is experiencing a shortage of skilled workers, there are also people who plan their careers here or even requalify from other professions. Salaries grow not only because of a shortage of staff but also because of the higher competence of employees,” said Ms. Amulė.
According to her, people name several reasons for employment in the fintech sector: “First, the desire to join a company that is transforming the financial services industry on a global scale. Second, a modern working environment with a positive attitude towards employees. Third, a motivating salary and additional benefits. It is important that both businesses and universities develop the necessary competencies, as the need for specialists will only increase. The majority of fintech companies plan to expand, so in the near future more people will be employed.”
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